MARCH 23 . 2006 • Q-NOTES
Finance
17
X^oney matters
/ fynn davidson, cjp®, clii
Prepare for
the
unexpected
Life has a way
of throwing us
some curve balls.
Just when you least expect it, you may lose
your job, you or a family member can
come down with a serious illness or lose
your home and belongings in a natural
disaster. While you can’t control an acci
dent and the unexpected emergency from
happening, you can take precautions to be
financially prepared. Here is a financial
checklist and some tips to help you get
started:
Create an emergency savings account
Keep enough savings to last at least
three to nine months covering all living
expenses in an easily accessible account
such as a savings or money market
account. This will allow you to access
these funds quickly if needed. To help
increase your emergency savings fund,
consider setting up an automatic with
drawal from your checking account on a
weekly or monthly basis. You may also
want to consider funneling tax refunds or
holiday bonuses toward these emergency
savings as well.
Have adequate insurance
Finding out that you do not have ade
quate insurance after an emergency or
natural disaster strikes will make matters
much worse. Make sure that you have
homeowners insurance, life insurance, dis
ability insurance and car insurance.
Depending on where you live you may also
need extra insurance for natural disasters,
such as earthquakes or floods, which are
often not covered in typical homeowners
insurance policies. Also, make sure you
understand what your insurance covers
and know the difference between full and
partial coverage.
Know your options
If you find that you don’t have
enough money in your cash reserves nor
do you have adequate insurance, you
may still have some options in case of
emergency. For example, you may be
able to open a Home Equity Line of
Credit (HELOC). Opening a HELOC can
be a sound idea, because there can be
no cost to open them and you are not
obligated to use the money. If you don’t
own a home or have not built up enough
equity in your home you can also with
draw up to half of your 401 (k) balance or
$50,000, whichever is less. Since you are
technically borrowing your own money,
you will not be taxed. It is considered a
loan, so you will need to make timely
payments. If you don’t, you will lose the
before-tax privileges. Rules, fees and
interest rates vary by employer, so check
with your human resources department.
It is worth noting that typically, if you
leave the company, the 401 (k) loan bal
ance is due in full. Also, defaulting on
this loan could cost you
your home, since it is used
as collateral against the
loan.
Government help
You are eligible for help
from the Federal Emergency
Management Agency (FEMA)’s Individual
Housing Program if your house has been
damaged or destroyed by a natural disas
ter, you do not have insurance and the
president declares your area a “disaster”
area. Grants up to $25,000 are available. If
your house was insured, but the insurance
doesn’t coverall the damages, you are still
eligible for assistance from FEMA, but your
claim cannot include personal items. If
your insurance, 401 (k) and FEMA don’t
cover all your losses, the government also
offers low-interest loans through the Small
Business Administration (SBA). Learn more
at www.sba.gov.
Conduct a household inventory
It is important to have a complete list
of all your possessions in the event that
your house is damaged or destroyed. This
will help you get a fair insurance payment
and show proof when you want to deduct
your losses on your tax return. Consider
using a video camera to document your
home and possessions, including your
vehicles.
Keep documents safe
Once you have completed your home
inventory make sure you keep this docu
mentation in a safe deposit box at a bank.
Other important documents such as
deeds, insurance policies, birth, marriage
and death certificates, stock and bond
certificates and vehicle titles should also
go in this safe deposit box. Stashing
recent tax returns or other financial doc
uments in your safe deposit box may also
be helpful. And don’t forget a copy of your
will — the original should be filed with
your attorney.
Avoid credit card debt
During an emergency you should try
to avoid piling up large sums on your
credit cards. This will make it harder for
you to get back on your feet later.
Consider restructuring your lifestyle dur
ing this financial crisis and adjust the way
you spend until things get back on track.
Meet with a financial advisor
Consider meeting with a financial
advisor who can help you create a
comprehensive financial plan that
includes emergency planning. A quali
fied advisor will determine if you have
adequate emergency reserves and
insurance to properly protect you and
your family.
This information is provided for informational purposes
only. The information is intended to be generic in nature
and should not be applied or relied upon in any particular
situation without the advice of your tax, legal and/or your
financial advisor. The views expressed may not be suitable
for every situation.
Ameriprise Financial Services, Inc. Member NASD.
American Express Company is separate from Ameriprise
Financial Services, Inc. and is not a broker-dealer.
phone: 704-987-9794
email: lynn.j.tlavidson@ampf.com
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