Dear Kim,
Dear Kim, as the sole provider for my family I have been shocked by the series of hurricanes and floods currently affecting our nation. We live in an area not directly affected by hurricanes, but neither did the people in Western South Carolina and Tennessee. Should I pull money from my 401K to have an easily- accessible emergency fund, or are there better ways to create cash for emergencies?
Distressed about disasters
Dear Distressed about disasters,
Everyone should be putting money aside for a general emergency fund. The idea of saving separately for a possible disaster isn’t really necessary, as long as you are saving regularly for unexpected expenses in general.
You can start by simply spending less than you make. That will leave room for setting aside money each month to put toward your emergency fund, as well as other savings such as retirement and upcoming known expenses, such as saving for Christmas gifts or next year’s vacation. Your emergency fund will come into play for unexpected expenses like car or home repairs. An unexpected disaster like we have been experiencing would fall into that category.
You should, of course, maintain your homeowner’s and car insurance, since the purpose of those insurance policies is cost-sharing. Insurance exists to help pay for expenses you either cannot or do not wish to pay for. It has never been intended to cover the entire cost of a loss. You should have the funds set aside in an emergency fund to cover your portion of the loss.
The conversation around insurance should include how much of the loss you can cover yourself, since raising that number will lower the amount you pay for the insurance itself. Carrying extra protection like flood insurance is something you should consider if you are concerned about that type of loss, even if you do not live in flood prone areas. You have to weigh the likelihood of an event like an unexpected flood versus the cost of carrying the insurance. I know the people without flood insurance in upper East Tennessee and Western North Carolina are going to have much larger expenses to replace or repair their homes, and FEMA will help with some of them, although certainly not all your losses, Here is information from FEMA’s website:
Disaster survivors in certain areas of Georgia, Florida, North Carolina, South Carolina, Tennessee and Virginia can begin their recovery process by applying for federal assistance through FEMA. People with damage to their homes or personal property who live in the designated areas should apply for assistance, which may include upfront funds to help with essential items like food, water, baby formula, breastfeeding supplies and other emergency supplies. Funds may also be available to repair storm-related damage to homes and personal property, as well as assistance to find a temporary place to stay. Homeowners and renters with damage to their home or personal property from previous disasters, whether they received FEMA funds or not, are still eligible to apply for and receive assistance for Helene.
Saving for a potential disaster should be part of your overall financial planning discussion. It does help to be prepared in case any unexpected events take place.
Kim
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