You don’t fully grasp the concept of a financial disaster until you’ve been locked out of all your bank accounts. This is what happened to Chanel Reynolds after her husband didn’t come back from his cycling trip.
Completely unprepared for her spouse’s death, Reynolds didn’t have access to her bank accounts or to her own disability insurance. She wasn’t even sure if they had signed their wills yet.
This frightening experience led Reynolds to write “What Matters Most: The Get Your Shit Together Guide to Wills, Money, Insurance, and Life’s ‘What-ifs.’”
In the book, she teaches people how to avoid ending up in her shoes by growing an emergency fund and keeping up-to-date records of personal information.
We chatted with Reynolds about how to prepare for financial disaster — when things are still OK:
Q: What are the top three worst situations people should prepare for?
Three very common triggers many adults are not prepared for, before we even begin to talk about a sudden or accidental death (or even an eventual or expected one) are: Diagnosis, Disability, and also Divorce.
Diagnosis. A serious illness, even a non life-threatening one, can quickly cause intense financial hardship and turmoil. In fact, cancer patients are twice as likely to declare bankruptcy.
Disability. According to The Council for Disability Awareness, 1 in 4 adults in the US will become disabled for an extended period of time, and without an emergency savings or disability insurance. Many experience intense financial difficulty due to a disability.
Divorce. It often leaves women in a less financially secure position. In fact, women’s standard of living falls an average of 27 percent after a divorce, while men’s rises 10 percent.
Q: How do you plan for a financial disaster when things are still going well?
When things are going well is the best time to plan for when life goes sideways and when shit hits the fan. We all can, and should, hope for the best. But hoping for the best is not a plan.
I like to try to plan for immediate, short-term and long-term scenarios. Not for every single possible thing that could ever go wrong, but for some of the things I can anticipate. On the west coast we have an earthquake preparedness kit. But what if I was one of the 1 in 4 adults in the US who became disabled for awhile? Or what if things really went sideways to the point where the life I have now changed long-term?
Short term things like some extra cash saved up in an emergency fund and/or disability insurance can help cover the always-there expenses if you, or perhaps your spouse can’t work. (Short term usually covers 2 years or less). You can temporarily rely on that income. There are the other daily-life things that might require back-up help like childcare or pets, needing additional friend/family support with household stuff like cooking, cleaning or shopping.
For riding out a long-term scenario or planning for the far-off future, this is where staying ahead can really payoff. For unexpected events, having long-term disability insurance can cover ‘lost income’ due to a disability until you hit retirement age. A life insurance policy would provide financial coverage if someone dies.
Long-term scenarios to plan for (things like a retirement savings, 401k, IRA, etc.). Long-term care insurance is also an option to help cover additional costs when you are in retirement. This can be expensive, so make sure to do your research on what costs are and aren’t covered.
Q: What can women do to assure financial security for themselves? How can they improve their financial management?
Generally: Educate yourself and others about the pay gap, retirement/investment gap. Women also do disproportionately more of the caregiving for children, family members and aging parents. This can lead to taking time off from work, working part-time or not seeing their careers advance at the same pace as male coworkers. What this adds up to is even more financial vulnerability.
A few specific things I’ve done myself and suggest to others:
- I make sure to protect my credit score like my life depends on it.
- I budget to maintain a healthy emergency savings (so I have time and options).
- Prioritize saving for retirement. If/when you can, take advantage of your company’s 401k, especially matching funds.
- I have my legal documents complete and shared with others so there is no confusion about what my wishes are because they are legally-binding instructions .
- I put the important payments on auto-pay (things that impact my credit and my financial priorities). If you can’t see it, you won’t spend it and more likely miss it.
- I set clear and actionable short and long-term, specific goals to help me make ongoing, smaller or daily financial decisions. (As in: buy whatever I want right now or save for that vacation I really want this summer)
Things like having contact information, important documents and some ‘back-up’ plans can make the first hours or days of an ‘oh shit’ situation go a little more smoothly.
Q: What is a Digital Power of Attorney and why it’s important to include it in your estate planning documents?
Having access to (or remembering) the usernames and passwords to your own accounts seems hard enough to wrangle sometimes, but what about shared or household accounts? Perhaps you and your partner share responsibilities and manage different bills.
Even though having usernames and passwords to those accounts would make your life come to a screeching halt if you couldn’t find or access them – it doesn’t necessarily mean you have a legal right to access them if you found the log-in information. A Digital Power of Attorney can help change that. Learn more here.
Examples of important accounts, beyond banking and bills:
- Cloud storage of irreplaceable photos, videos or family
- Historical documents
- Accounts with points or monetary value like airline miles
- Social media accounts like Facebook, Instagram, WhatsApp, Twitter and LinkedIn.