red and black square box by Irvin Zheng courtesy of Unsplash.

The 5-Minute Financial 'Fire Drill': Are You Prepared for a Sudden Squeeze?

David Findlow CFP® |
Categories
Risk Management
Savings

We all have insurance for a fire, but most of us have no plan for a "financial fire". A financial fire is a sudden, high-pressure event that requires immediate cash: a job loss, a major medical emergency, a tree falling on your house, or an urgent call to help an adult child or aging parent. When the fire alarm is ringing, you don't have time to "figure out" a plan. You need to know exactly what to do. Can you pass this 5-minute "fire drill"? 

1. Where is your Emergency Fund? (0-60 Seconds) This is the "fire extinguisher" in your kitchen.

  • The Question: Do you have 3-6 months of living expenses in a safe, liquid, high-yield savings account? Not in stocks. Not in a CD. Not in your checking account.
  • Why it Matters: This fund stops a problem from becoming a disaster. It means you don't have to sell your best investments at the worst possible time (or go into high-interest credit card debt) just to cover a crisis.

2. Who Do You Call? (60-90 Seconds)

  • The Question: Do you have a single, organized folder (digital or physical) with the contact info for your "financial first responders"?
  • The List:
    • Financial Advisor
    • CPA / Tax Preparer
    • Insurance Agent (Home, Auto, Life)
    • Estate Planning Attorney
  • Why it Matters: In a crisis, you are stressed and not thinking clearly. You need the numbers on speed dial.

3. Where is Your "In Case of Emergency" Document? (90-120 Seconds)

  • The Question: If you were in the hospital, could your spouse or partner pay the bills? Do they know the passwords? Do they know where the life insurance policies are?
  • Why it Matters: A crisis is 10x worse when it's also a scavenger hunt. A single, secure document (or password-protected spreadsheet) with all account numbers, passwords, and policy information is the most important "insurance" you can have for your family.

4. What is Your "Cash Triage" Plan? (120-180 Seconds) If your emergency fund runs out, what is the next source of cash? 

  • The Question: You need to know the "pecking order" of your assets.
  • The Plan:
    1. First: Your high-yield savings (Emergency Fund).
    2. Second: Your non-retirement brokerage account. (Sell the least-appreciated stocks first) .
    3. Third (and last): Your retirement accounts (Roth IRA contributions are tax/penalty-free, but this is a last resort).
  • Why it Matters: Without a plan, people panic. They cash out their 401(k), creating a massive tax-and-penalty disaster. Never, ever touch your 401(k) in a crisis until you've spoken to a professional.

If you can't answer these four questions in 5 minutes, you're not prepared. The good news is that you can fix it. Take an afternoon to build your "fire drill" plan. You'll sleep better for the rest of the year.

What's the one part of your "fire drill" you need to work on this weekend? Share your goals with us!

Schedule a Consultation These are general strategies and may not be right for your specific situation. If you'd like to discuss how these concepts apply to your financial plan, please feel free to schedule a complimentary call: Click here to schedule