Your Emergency Financial First Aid Kit

Chances are good that you have a first aid kit in your house in case of bumps or scrapes. This kit helps ensure you can take swift action to limit damage. 

It’s great to be prepared to limit damage to your finances, too. Having a first aid kit for your finances can help you be ready when there’s a financial emergency, and help you avoid debt relief and other difficult scenarios.

Making a financial first aid kit means putting the tools and processes in place so you're prepared for unexpected events. Here are the steps to take. 

Preparing for a Natural Disaster with a Financial First Aid Kit

If you want to be prepared for emergencies, the Federal Emergency Management Agency (FEMA) has some helpful advice for you. In fact, FEMA has a step-by-step guide to putting together an emergency Financial First Aid Kit that you can follow to be ready for a natural disaster such as a flood, a hurricane, or a wildfire. 

Here are the steps FEMA says to take to be ready. 

Step 1: Gather your important financial documents

If you need to leave your house quickly in an emergency, you'll want your most important documents in one place. Ideally, have digital copies of these forms as well as physical copies that can become part of your financial first aid kit. 

Documents to assemble and keep in a safe place include the following:

• Legal documents: This includes wills and trusts, powers of attorney, adoption certificates, marriage licenses, and child support or custody agreements. Ownership and insurance documents also fall in this category, including life insurance and copies of insurance policies for your car, home, and health, as well as the deed to your home and your mortgage paperwork or rental and lease agreement.

• Identifying documents: Be sure to have documents to prove the identity of all family members. This includes Social Security cards, birth certificates, driver’s licenses/state ID cards, passports/green cards, naturalization documents, military IDs, and any pet ownership or microchip documentation.

• Medical documents and information: Gather key documents and make a list of essential information, including prescriptions, emergency contacts, health insurance or Medicare cards, and medical equipment documents.

• Financial documents: Have your last tax returns, government benefits statements, a list of your bank accounts, and a list of your credit and debit cards. You'll also want to include loan documentation for outstanding debts such as student, auto, and property loans.

Make sure you know how to contact your bank and any creditors in case you need money or can’t pay bills for a time. Having a full list of your current financial obligations will help you keep your debts in order when you are stressed during an emergency.

You should also keep a small amount of cash handy for immediate needs, because in a large-scale natural disaster, you may not be able to use a debit or credit card.

Step 2: Make sure your documents are current

It doesn't do much good to create an emergency financial first aid kit with outdated or incorrect documents. To avoid this, FEMA advises reviewing the documents you collect. 

According to FEMA, you should review your homeowners insurance policy at least once a year to make sure your coverage is as comprehensive as it needs to be. If you made changes, such as adding a pool or renovating your home, let your insurer know, and confirm you are covered.

It's also a good idea to review documents such as your will to make sure it reflects your current wishes for how assets should be distributed. 

Step 3: Make sure your documents are safe and accessible

FEMA suggests making sure your documents are stored properly, and that you can access them when you need them. To keep your key financial information safe, FEMA recommends keeping your forms in a fireproof and waterproof safe in your home, or in a safe deposit box at a local bank. It's also a good idea to keep electronic copies on an external drive or stored in the cloud—just make sure your passwords are updated regularly and meet safety standards.

Step 4: Update

Finally, FEMA urges you to keep your emergency financial first aid kit up to date so you’re always prepared when something goes wrong. 

While reviewing your kit once a year may be advisable, you can also do a review when any life changes happen, such as changing insurance, changing houses, moving to a new home, having children, or when there is a death in the household.

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An Emergency Fund Belongs in Your Emergency Financial First Aid Kit

While FEMA doesn't specifically address this issue as one of its steps, having an emergency fund is also a key part of your financial first aid kit.

An emergency fund is an easily accessible amount of money you keep in a savings account to draw from for an unexpected financial need. Ideally, you'll have three to six months of living expenses in your emergency fund so you can keep the bills paid for months of unemployment, or cover major repairs or other unexpected costs.

It’s common to lack an emergency fund—a survey by Freedom Financial Network showed most Americans have less than $5,000 saved, and only 53% have any kind of emergency fund. 

If you’re able, save more money in your emergency fund now so you can cover unexpected expenses without going into debt. You can set up automatic payday transfers with your bank to start building your emergency fund each month, just like you'd pay any other bill. It's okay to start small with your savings, because even if you save just $5 per day, you’ll have $1,825 after a year.

Preparing to cover living expenses in an emergency

When you're deciding how large your emergency fund needs to be, figure out how much you need to live on each month. 

Calculate the amount by considering:

• Fixed costs, such as your rent or mortgage

• Variable costs such as utilities

• Extra optional costs, such as TV

You should also know you may be able to pause payments by participating in a hardship program. This could include applying for forbearance from your mortgage or credit card company. However, this can make repayment take longer and potentially impact your credit, so try to avoid doing this by building up a generous emergency fund as part of your financial first aid kit.

Finally, remember that the mission of government agencies like FEMA and the CDC, and non-governmental organizations like the Red Cross, is to assist. Taking advantage of the support these agencies offer can be invaluable in a major disaster, where your emergency financial first aid kit is a help, but doesn't make all your problems disappear.