Does your otherwise secure lifestyle include provisions for a financial emergency? There’s no sense wasting time trying to guess what kind of situation might arise, because that’s included in the definition of emergency. It comes out of nowhere and often when you least expect it. Medical bills, foreclosures, business failures, uninsured or poorly insured losses like house fires, major thefts, higher than planned educational expenses, and dozens more make up this scary category.
But the good news is that all those possibilities need not be so frightening. If you’re prepared to take a major hit at any time, even the most serious monetary nightmares are not as much of a threat. How do every day, working adults prepare for such eventualities? They learn and follow tips to manage stress in general, to start. And they also break down the specifics, here are some of the most common resources, techniques, and strategies in the average person’s financial emergency toolkit.
HELOC
A home equity line of credit, or HELOC, is one of the most common ways for homeowners to deal with crises of various kinds. Because your home is nearly always the largest and most costly asset in your personal portfolio, it’s not smart to borrow against built-up equity unless you have no other way to raise capital.
Life Insurance
If you currently have life insurance coverage, chances are that you can sell it for cash in times of need. In fact, you don’t even have to be in dire straits to sell a policy via a life settlement. To learn the details of how this rather simple process works, and make an estimate of how much your policy is worth, review an online guide that offers all the facts.
Emergency Fund
If you’ve ever spent more than two minutes speaking with a consumer counselor, you already know about the wisdom of establishing an emergency fund. The problem is that the vast majority of working adults don’t take the time or make the effort to set aside up to six months of income. But, for those who do take the advice and spend several years creating such a fund, the things are true life savers. Not only do they earn interest, just like savings accounts, year after year, but there are zero restrictions on how you use them. Unlike IRAs and other cash sources, anyone with an e-fund can pull out whatever amount they need whenever they need it.
IRAs
If you have a traditional IRA, there are some circumstances under which you can pull money out without having to pay the hefty 10 percent penalty, in addition to tax, on the amount taken out. Some of those conditions include typical emergencies like medical expenses for which you have no in-place insurance coverage, premiums on health policies while you are not working, expenses for your or a family member who attends college, if you become permanently disabled, to build (or buy) a home, and more. Keep in mind that, as with all things tax-related, there are exceptions and conditions on the items listed above. Always speak with a qualified tax professional before yanking cash out of an IRA. Otherwise, you risk having to pay a significant penalty as well as ordinary income tax on the withdrawn amount.
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