This morning I headed to NBC’s Today Show to discuss preparing for life’s financial emergencies in advance. In my new book, Psych Yourself Rich, I write about how dealing with life’s financial hardships from a job loss to a pricey divorce or sudden illness shouldn’t have to feel like a 911 money emergency, as long as we make the time and effort to prepare.
Here’s a recap of my conversation with NBC’s Ann Curry, including the top questions everyone, as well as couples and married folks, should try to answer now.
#1 What’s my financial status right now? Do I even know?
This is a critical question. It’s a reality check with the hopes of achieving a stronger sense of what areas need improvement. Figure out:
- How much savings do I have right now? Know every penny. I always say one good financial habit to get into is to check your savings account each day, just like you would step on scale to watch your weight. You want to have at least 6 to 9 months savings set aside. Sites like Mint.com and Bundle.com can help organize all your finances in one place. Even your bank’s site can help you keep tabs on savings, of course. If your bank has a phone application, download it to check your status on the go.
- How much debt do I have right now? Again, know every penny. (The sites mentioned above can help you keep track of all of this, too).
- What’s my credit score? You can get a free credit report card from Credit.com, which includes an estimated credit score.
- What’s my job security? Be honest and consider your industry and your performance, and consider finding an extra revenue stream. By the way, it’s taking 8 months for an unemployed person to find a new job in this market.
- What are my money drains and what am I doing (if anything) to combat them? If you’re sinking in debt, consider seeking professional help. The National Foundation for Credit Counseling at NFCC.org can offer you a free assessment. Nip it in the bud before it’s too late. Track your spending for 7 days to get a sense of what your day-to-day money drains may be. Taking too many latte breaks? Cab rides? Dinners out? The little day-to-day expenses really add up.
#2 Am I protected in case of an emergency like an illness, disability or theft?
- What’s in my health insurance policy? How much does it cover?
- Do I have enough renters’ or homeowner’s insurance?
- If I get disabled do I have sufficient disability insurance? Almost one-third of Americans entering the work force today will become disabled before they retire, according to Social Security Administration. Meantime, most workers in the private sector have no long-term disability insurance.
Questions for couples about to tie the knot:
What are we getting ourselves into (financially)? Are we compatible?
A recent online survey found 19 percent of couples avoided or didn’t think of talking finances, and 33 percent didn’t know their spouse’s credit score. Studies show we tend to find our financial opposite and marry this person, so it’s more than likely one of you will be a saver and the other a spender. Rather than try to turn your partner into your financial clone, it’s important – before making a marital commitment – that you get on the same financial page, that you understand what each person brings to the relationship financially and whether you can commit to common goals.
Here’s a basic checklist of what to run through:
- Income: What is your salary and what is your take-home pay?
- Savings: How much money do you have in savings? How do you save? A note to couples: when you comingle your finances, make sure each person has his/her own savings account. It helps to protect each person’s financial independence in the event of a divorce (and you need to hire an attorney), or any time you don’t want to ask for permission to use your own money (like your sister asks you for an emergency loan and you don’t want to jeopardize the family’s savings)
- Debt: From student loans to credit card debt, car and home loans, how much do you owe? How far along are you in paying these debts back? Understand your debt loads and credit scores before getting married. Have a sense of what the financial obligations may be ahead of time so you can try to either get a head start or develop a strategy before you get married.
- Assets: What do you fully own that has value? Do you own your car? Own stocks? Property? Will you want a prenup?
- Credit History: Pull your credit report for free each year from each of the three major credit-reporting agencies at www.annualcreditreport.com. You want to check for discrepancies and errors. Make sure what’s reported accurately represents your knowledge of your credit history.
Questions for married folks:
If something happens to one of us, am I prepared to step in and manage the household finances?
Get Up to Speed. Understand where your financial, medical and legal documents are stored both online and off. While each household should designates a chief financial officer or CFO to take charge of the bills and financial documents, it’s important to switch roles once in a while so that your spouse or partner understands how to manage it in case he or she needs to step in.
Have an updated list to passwords to the accounts and the name and phone number of:
- Attorneys – Specifically, your estate planning attorney who can refer you to your will. (If you don’t have one, you should).
- Lenders – You don’t want to fall behind on your mortgage and any other loans under your name. Have these numbers handy in case you need to step in and sort out those monthly bills.
- Insurance Agents – Specifically know the agent of your life insurance policy. Again, if you don’t have one and you have dependents, this is a must. There are 11 million households with children under the age of 18 that have no life insurance, according to a new survey by LIMRA.