Self-Defense for Financial Emergencies
Recent turmoil in the financial markets has made many people nervous about their money.
Big risks look less attractive and defending what you have is the new strategy. Here are a
few lessons in self defense to "guard your pocketbook."
Set Up An Emergency Fund
In these days of corporate layoffs and huge medical bills, you should have three to six
months' salary saved if you lose your job or are unable to work. Keep this money in a
separate account and ONLY dip into it for emergencies.
Review Your Homeowner's Policy
Your insurance policy shouldn't just protect against partial damage, it should cover your
property in the face of disasters...fire, flood, hurricane, tornado, etc. The coverage
should cover the current cost of rebuilding your home, not its original value.
Take an inventory of your home's contents, photographing or videotaping your possessions.
Keep this record of your belongings at your office or in a safe-deposit box. If disaster
strikes, you'll be prepared - and your insurance company will be better able to give you a
fair settlement.
Bulletproof Your Portfolio
If you try to protect yourself against all investment losses, you're guaranteed to get
mediocre investment returns. Indeed, if a bear market is defined as losing ground to
inflation, those who invest too conservatively are always in a bear market.
The key is to diversify. Most people should put together an old-fashioned balanced
portfolio, which includes a broad mix of financial instruments.
Get Adequate Life Insurance
The minimum amount of insurance should be equal to five years of your
after-tax income. If you have very young children, you may want to make that seven years.
This will provide your family with enough income to get back on firm financial footing.
Some people may want to include additional coverage to pay off their mortgages or to fund
future college education costs.
In addition to insurance, make sure you have a will - especially if you have young
children. In come states, half of your estate will automatically go to your children - not
to your spouse - if you don't have a will.
Protect Against An Audit
The best way to avoid an audit is to complete your tax return properly in
the first place.
Make sure you keep accurate records to back up your deductions, keeping this on hand for
three years.
If you don't have the money available to pay the amount owed to the IRS, it is sometimes
possible to pay it off in installments.
No one likes to take a "worst case scenario" view of the world, but when it
comes to protecting what you've built, pessimism can be a virtue!
