How to Create Your Financial Emergency Plan

When I was in elementary school, I remember watching a fire safety video. The video told us, all of eight years old at the time, that we needed a fire escape plan.

This kid knew what to do during a fire.
This kid knew what to do during a fire.

Come up with a fire safety plan kid, or you’ll die kid. Heavy stuff.

You needed to know what happens during a fire, how to check doors, how you’ll escape, and where you and your parents will meet up once you get out.

I still remember the answers. Touch the door with the back of your hand, then the back of the knob with the back of your hand, escape down the stairs, and then meet at our mailbox at the end of the driveway. I also remember that we didn’t have a window escape ladder and that if I was trapped in my bedroom, well, I’d be dead.

DEAD! eek!

We never had a fire, thankfully, and I never died. Whew!

I write that all tongue in cheek but it does illustrate something important that I’ve internalized – you should always have an emergency plan.

Years later, I would read Checklist Manifesto by Atul Gawande and learn the value of checklists, even basic ones, as a way of taking the decision making out of emergency responses.

When something unexpected happens on a plane, the pilots don’t think about what to do next, they follow a checklist. A checklist created by an experienced professional who isn’t panicking because one of the engines just went out.

What I’m proposing is that you, sitting in front of the computer shirking responsibilities at work, should create an emergency plan for you and your family. Or you die. (just kidding)

How to Create Your Financial Emergency Plan

This is a two phase process:

  1. Write a list of major financial emergencies
  2. For each, create a checklist, with supporting data, for what you’ll do if it strikes

Identifying Major Emergencies

A major financial emergency is defined as anything that would cause you to dip into your emergency fund.

With that simple definition in mind, here are some common major emergencies:

  • Death – Yours or a close loved one
  • Loss of a job or ability to work due to disability
  • Loss of use of your primary vehicle
  • Catastrophic emergency home expense – major appliance failure or repair, water leak, roof leak, burglary.
  • Natural disaster damage
  • Medical or dental emergency
  • Bereavement-related expense – funeral, travel costs
  • Lawsuit

This is just a small list of the potential major emergencies in your life. You know your situation best, you should cover all the ones you’re likely to experience.

Creating Each Checklist

Now take one of the major emergencies and list the things you’d do in response. Let’s take the most catastrophic – the loss of your job.

What would you do?

  • Cut all non-essential expenses – List all of the recurring expenses and the process for cancelling.
  • Downgrade non-essential un-cuttable expenses – Some recurring expenses cannot be cut, figure out how to downgrade them to save money.
  • Prioritize bills – Now that you know your fixed expenses, begin prioritizing your bills in case you can’t pay them all.
  • Rework your budget – Now that your income has fallen, it’s time to rework your budget. If you don’t have a budget, you need one now.
  • Apply for government benefits – Collect the address of the local state unemployment office and any pertinent information you need to file a claim.
  • Call a family meeting – Prepare in advance what you want to discuss.
  • Get health insurance – You will have access to COBRA for a short time, but is it the right option? Should you consider the Affordable Care Act? What are your options?
  • Establish an approach for getting a new job – Update your resume (you should be doing this every 6-12 months anyway), network, etc.
  • Establish a short-term Plan B (part-time) job – You’ll only receive so much in unemployment benefits, is there a stop gap job you can get to draw income while you continue to search.
  • Establish what you’ll do in the downtime – Exercise, might as well get fitter with all this time you have.

You don’t have to fully research every line item but you should have every line item listed.

Creating a checklist has two valuable benefits:

First, you simulate your response. You can plan your response without the stress. This is a very powerful exercise because you’ll be able to formulate a better checklist if you aren’t panicking at the same time.

Second, now you have a list of things to do along with the information you need. If you do lose your job, you don’t have to search for it.

Take filing for unemployment, the first result for “filing for unemployment in MD” leads me to a page on the Maryland Department of Labor’s site that says “The How to Apply for Maryland Unemployment video is not available. To obtain additional guidance regarding filing for Unemployment Insurance, please check out our Claimant Frequently Asked Questions (FAQs) or contact the Claimant Information Service.”

Great. Thanks, Maryland. If I was upset I lost my job, now I’d be upset at the incompetence of whoever is running this site. When you’re calm, you see that page and you think – “eh, onto the next one.” When you’ve just lost your job, you’re not in the right emotional state.

The next result gives me a page that lists the location of every state unemployment office, the Maryland Unemployment website (mdunemployment.com), as well as eligibility information. I know now that I can file Monday through Friday, 8 AM – 3 PM, or by Internet anytime… if that website worked. After a few tries of the website, I learned it was just a redirect to this page – http://www.labor.maryland.gov/employment/unemployment.shtml – so now I put that URL in my emergency plan.

Once you’ve created each checklist, store the whole document in a safe place, and review it once a year. I keep mine with my Money Field Manual.

Build It Piece by Piece

Collecting the information for each financial emergency is time-consuming. Start with the highest probability, highest-impact items first.

If you are in a stable job with long term career prospects, building the “Job loss” checklist is a lower priority than “loss of use of your primary car.” Work on the car breakdown list first, since you’re more likely to get into a situation where you lose your car.

If you break up the work, it makes it a less daunting a task. You don’t need every answer right away, just take a few minutes each week to throw some items in a list and do some preliminary research.

There are also some things you can do to prevent disasters in the first place. Check out these financial safety nets

Write Down Post-Disaster Debriefs

Over New Year’s 2018, we had a pipe burst in our home. It flooded several parts and it was tens of thousands of dollars of damage.

We discovered it after our annual four day trip to Deep Creek, MD with our college friends. When we got home, after dropping the kids off at daycare and school, we walked into a disaster. Fortunately, no one was hurt. Areas of the home were damaged but it was still livable, we still had all of our major systems, and we were able to mitigate the damage somewhat because we knew how to turn off the water without having to search in a panic.

What we didn’t know was what to do next – we had to guess. Our first call was to our homeowner’s insurance company (State Farm) and then our second was to several water mitigation companies to see who would come out first. Mold starts to become a problem very quickly and you want to dry things out as quickly as possible. Our only previous experience with water was a burst well pipe going into the home, but that just flooded an unfinished crawlspace.

As I’m updating this post, in March of 2018, we are still working with the insurance company (just getting things approved, they are not being difficult by any means) while contractors are performing the repairs on the home.

We are documenting the experience for our records so we have an idea of what to do if this happens again. Hopefully, it won’t… but if it does, we’ll know what to do.

Do you have a Financial Emergency Plan?

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Jim Wang

About Jim Wang

Jim Wang is a thirty-something father of three who is a frequent contributor to Forbes and Vanguard's Blog. He has also been fortunate to have appeared in the New York Times, Baltimore Sun, Entrepreneur, and Marketplace Money.

Jim has a B.S. in Computer Science and Economics from Carnegie Mellon University, an M.S. in Information Technology - Software Engineering from Carnegie Mellon University, as well as a Masters in Business Administration from Johns Hopkins University. His approach to personal finance is that of an engineer, breaking down complex subjects into bite-sized easily understood concepts that you can use in your daily life.

One of his favorite tools (here's my treasure chest of tools,, everything I use) is Personal Capital, which enables him to manage his finances in just 15-minutes each month. They also offer financial planning, such as a Retirement Planning Tool that can tell you if you're on track to retire when you want. It's free.

He is also diversifying his investment portfolio by adding a little bit of real estate. But not rental homes, because he doesn't want a second job, it's diversified small investments in a few commercial properties and a farm in Illinois via AcreTrader.

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  1. Mrs. Dibidend says

    This is a great list. We are newlyweds and are just starting to put things together financially. This is very helpful to us. Thank you!

    Mrs. Dibidend

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