HouseMojo

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Archive for the month “June, 2011”

Emergency Preparedness for Minimalists, Part 4: Money, Money, Money

By now, you have a list of emergencies you are preparing for and a list of emergencies you are not preparing for. You’re ready to put together an emergency preparedness kit. Because we’re taking the minimalist approach, we want to keep our kit small, light, compact and versatile. This brings us to the first thing that should go in your kit: Money.

Money is the Universal Preparation. There are others that are also important, and we’ll get to them.  But first things first. Why is money so high on the list?

For versatility, portability, transferability, and adaptability, cold hard cash is hard to beat. It’s useful for emergencies at home. It’s useful for emergencies away. It has no expiration date. It should be the foundation of your emergency preparedness kit.

Let’s look at the practical ways that money will work for you if disaster strikes.

It’s a rare trouble that lacks a financial component. If you’re ill, disabled, or suddenly on an “involuntary vacation,” (ie. unemployed) having money in an emergency fund will smooth the bumps and give you the time you need to get back on track. Having a cushion reduces your stress and lessens the impact of these disasters on your life. This is the point of an emergency kit – to allow you to move past the emergency and return to normal life with as little disruption as possible.

Money is useful in a natural disaster, too. Need to evacuate due to wildfire, earthquakes, hurricanes, tornadoes, or other assorted tantrums of Nature? Money for gas, for renting a car if you don’t have one, for booking a hotel, for bottled water, for plywood for your windows, for doing laundry at a Laundromat because you didn’t get a chance to before you bolted – yeah, you’re going to want it.

How should you organize this emergency money? We keep ours in three groups, each with a different purpose. From smallest amount to largest amount (and from immediately available to less-available), they are:

  1. Cash on hand. Ever met a merchant who wouldn’t take cash? No? Me, either. Useful for when the grid is down and credit card terminals don’t work or you just don’t want to put it on the credit card.
  2. A checking-account cushion. This is an interim source of funds for middle-sized emergencies, like new tires for the car after a blowout while on a road trip or roof repairs after a tree falls on your house. I like being able to avoid the psychological stress of additional debt. Being able to pay cash for unplanned events makes them less stressful.
  3. A checking-linked savings account. This is where the bulk of our emergency savings is stored, in an ING Direct account that is linked to our checking account. Once a month, after payday, we have a set amount of money automatically transferred from our checking account to our emergency fund at ING Direct. Because this money is safely and automatically stored in an account that’s a little bit inconvenient to get to, we don’t spend it. It’s there for big emergencies, and I can transfer cash from it to checking within three days, either by telephone or online.  From anywhere I happen to be. Very handy.

How much money are you going to need in your emergency kit? Most financial planners will recommend three to six months’ living expenses. Do what seems right for you. There are a lot of resources to help you start and build an emergency fund if you don’t already have one. I particularly like the advice and ideas given by J.D. Roth and company over at Get Rich Slowly. With time and persistence, your cash stash will grow. It will be there when you need it.

I’d love to end this series here. But we all know that money isn’t the solution to everything in life, and that’s true for emergencies as well. I can think of a couple of scenarios where the Benjamins won’t be on your side: a natural disaster so massive that normal commerce is disrupted, and a total currency collapse.

We’re going to leave the latter to the economists, doomsayers and policy wonks. It’s their job to worry about stuff like that, and I’m not one to deprive the professionals of their joy. But the first one – yeah, that’s in my ballpark. So, coupled with our cash stash, I’ve put together a small emergency kit that should help us get through the first few days to a week of a disaster. I’ll post the list of what we’ve got, and why I put it together the way I did, in Part 5.

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