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How to Prepare Your Finances for an Emergency

One thing in life that you can be sure of is unpredictability. In observance of National Financial Capability Month, this article will take a look at Emergency Preparedness and how to best to arrange your financial affairs so that you can weather any unforeseen events that may throw a curveball at your plans.

When an emergency arises — and especially when more than one occurs at the same time — it can certainly put your abilities to the test when it comes to financial stability. Being able to adjust and recover as needed is essential. For example, in the past couple of years we have all been given some highly stressful circumstances, what with the pandemic and a few other irregular events thrown in to make things interesting. It takes financial resources that many people may not have.

Emergencies don’t take into account whether or not the timing is good for you. They just happen — ready or not. There are things you can do to improve your financial preparedness that might make the unexpected a little bit less of a disaster.

 Unfortunately, more than half of Americans are in a financial state of affairs that would not allow them to cover three months of expenses if an emergency came knocking tomorrow. Building an emergency fund is one of the basics of financial wellbeing, and having that safety net provides much-needed peace of mind.

The Consumer Financial Protection Bureau (CFPB) offers advice and resources on how to financially prepare for an emergency. Here are five strategies:

Create a savings habit. Create a system for making consistent contributions, monitor your progress, and do not forget to celebrate your successes!

Manage your cash flow. Monitor your income vs spending. If you notice problem areas where more money is going out, you can work with your creditors to get extra time and avoid falling behind on your payments.

Save. Take opportunities to put away money whenever possible: a tax refund, or a holiday or birthday gift. Putting away some money, even small amounts, helps you create an emergency fund.

Make your saving automatic. Setting up automatic transfers from your checking account to a savings account is a great way to start saving. In addition, you can always adjust the transfers if your situation changes.

Save through work. You might be able to split your paycheck between accounts if you have a direct deposit set up. Work with your employer to see if there are options to put money aside without having to remember to do it.

When a government or organization sets money aside for emergencies, they call it a “war chest.” Perhaps it is time to get your war chest ready. That way if an emergency does arise you can conquer it more easily. 

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IMPORTANT DISCLOSURES

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. 

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC

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