Harvey, Irma and the importance of rainy day funds.

I’m interrupting my scheduled ‘Tips from Pops’ post to bring you (at the request of one VERY pushy daughter) some timely information. Recent catastrophic events – in our hometown of Houston, throughout the Texas Gulf Coast, and now in the whole of Florida – can (and will) have a devastating financial impact on the people and businesses affected. And because my brain just naturally goes there, I began to wonder how folks, especially those without insurance, will recover. Do they have the money or resources to get by?

The power of planning.

Let’s talk “rainy day funds”, or money set aside to take care of unexpected financial needs. If nothing else, the horrific flooding resulting from Hurricane Harvey and the havoc still being wreaked by his nasty sister, Irma, are not-so-gentle reminders of the value of rainy-day or emergency funds.

Now, if you’re familiar, let me stress that I am NOT referring to the Texas Legislature’s multi-billion-dollar “Economic Stabilization Fund” – a type of governmental rainy-day fund rarely used for disaster relief.

I’m speaking of the tens of thousands of individual citizens who tragically find themselves with damaged and/or flood-inundated homes, soaked furniture, ruined automobiles, moldy clothing, and in some cases, an interrupted paycheck. The majority of whom are without flood insurance AND without a personal rainy-day or emergency fund to help restore a normal life.

Let’s talk facts.

According to a FINRA* Investor Education Foundation Study, 56% of people in this country don’t have an emergency fund large enough to cover three months of unexpected expenses, even though it’s often recommended that this fund size cover up to six months.

So, what happens when unexpected expenses arise, like major auto or home repairs, a job loss, medical emergencies, unplanned travel expenses and…ahem…flooded homes?

Sixty-four percent of Americans don’t have enough cash on hand to handle a $1,000 emergency expense, let alone an uninsured flooded home (according to a survey by the National Foundation for Credit Counseling). In fact, 25% of Americans don’t have a fund at all. Whether it’s by choice, or most likely necessity, they live paycheck to paycheck, hoping upon hope that no major financial disaster will uproot their lives.

I would venture to guess that one week before Harvey struck, most of the citizens of Houston and Harris County, Texas barely gave a tropical depression in the southern Gulf a second thought. Or if they did, they assumed it wouldn’t veer north.

But the unimaginable did come to pass. So, what now? What are the choices for those without insurance or rainy day dollars?  Well, they’re not too pretty. The lucky ones can borrow from family or friends. Others are likely forced to neglect bills, sell or pawn other assets, or get a cash advance from a credit card company. In short, choices that will only exacerbate their financial woes.

Okay, we get it, Pops. We need an emergency fund. But where is that extra money gonna come from?

As the old adage says, “Rome wasn’t built in a day.” All you need to do right now is take the first step. And don’t set your initial emergency fund goals so high that you soon deem them unrealistic or unattainable. One hundred or one thousand dollars is better than nothing, and when you hit that mark, strive for two hundred or two thousand, and so on.

Also, if you have a good relationship with your bank, consider establishing a $10,000 line of credit – money that can be borrowed in case of a financial emergency. If that works out, use your smaller rainy day fund to supplement this line of credit.

How to source those rainy day dollars.

To help build your rainy day fund, you can begin to reduce or eliminate spending on nonessential goods and services. It doesn’t have to be painful. If you’re eating out or ordering in 3-4 meals per week, cut it to two or three. Also, collect spare change and add that to your fund. You’ll be surprised how quickly those dimes and quarters turn into dollars.

Unexpected salary increase? Tax refund? Put some (or most) of those supplemental dollars into your rainy day well.

Another great way to collect funds without feeling the sting is to have your bank automatically shift a small amount ($25-$100) from your checking to your “emergency” account each month. Some banks even allow you to put a dollar into that same account each time you use your debit card. That pushy daughter I mentioned earlier? She and her husband are doing this. She says the dollars add up quick, and it’s an amazing way to build their fund, without even noticing it!

Collect what you can, when you can.

As you get started, ensure that basic needs are met to avoid discouragement during the accumulation process. And as you build your emergency fund, look for ways to also reduce existing debt, particularly expensive credit card debt, and avoid new debt obligations.

Starting an emergency fund can be as simple as depositing $100 into a savings account. But be wise. Keep your emergency funds in a separate account – one less accessible than your regular checking or savings accounts. And don’t carry a debit card tied to that account.

All in all, just make it a bit inconvenient to access these funds. We all lack a bit of monetary self-discipline from time to time, so force yourself to consider your actions before making a withdrawal.

A rainy day or emergency fund is a relatively accessible stash of cash for use only in case of emergency. Don’t use it to buy a new automobile or computer. And unless you live on the Texas Gulf Coast or in Florida these days, don’t use it to buy a new piece of furniture or remodel your kitchen, either.

During tough times, lean on your community.

Houston is a bustling metropolitan area, well-stocked with numerous Fortune 500 companies. It’s also a population of folks with a big heart in times of great stress – something we’ve seen over and over again throughout this great country when our fellow Americans are in need. In addition to friends and neighbors, hundreds upon hundreds of companies, large and small, are coming to the aid of Harvey victims, and I expect we’ll see the same in Florida.

If you’re employed and you’re affected by these or other catastrophic events, check with your employer. They might be offering temporary housing, food supplies, interest free loans, grants and/or volunteer cleanup to impacted employees. Counseling and employee time off to take care of family needs might also be provided. It’s certainly worth checking!

Of course, these are voluntary acts, and not all companies participate. And if they don’t, or if you’re currently in between jobs, friends and neighbors are often very willing to help. We’ve seen it over and over here. Friends helping friends. Strangers helping strangers.

If you want to know more about rainy day funds and how best to get yours going, comment below. I’ll do my best to get back to you as quickly as possible.

Until next time, thanks for joining us here at YM&TT. We’re real glad to have you!

*FINRA: Financial Industry Regulatory Authority

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