Emergency financial reserves

As I write these words a code red alarm has just sounded in Ashkelon, the Israeli Air Force is carrying out bombing sorties in Gaza, and several major world players are trying to mediate the terms of a ceasefire between Israel and Hamas.  My heart and prayers are with all the citizens and soldiers of Israel as we live through these very challenging times.

However, as a professional who prides himself on helping people achieve, retain and/or regain financial stability I would be remiss if I didn’t point out some crucial financial preparations necessary to help you cope financially when living life in the shadow of emergencies and devastation.

Financial planners usually talk about the need for asset liquidity to cover your living expenses for a three to six month period in the event of an emergency.  Often people belittle this advice, possibly for two reasons.  Firstly it’s a hefty sum to organize as savings that won’t be touched or actively invested, and secondly because people like to subscribe to the ‘it won’t happen to me’ syndrome.

And that’s really why I’m writing this now.  If you are not one of the innumerable Israeli citizens who has spent countless, harrowing hours under the threat of missile attack, put yourself in their ‘financial’ place for a minute.  Their whole rhythm of life has been thrown out.  They want to be close to home and close to their dependents, and not worrying about their financial situation, how they’re going to make mortgage or rental payments this month among their many financial obligations. Not to mention the position of those who tragically have been injured, or have seen their homes and possessions damaged or destroyed.

Alternatively, imagine yourself in the place of an American living in New York City or the Five Towns, who until a few weeks ago thought it was his indisputable right to be surrounded by his possessions.  Until Hurricane Sandy arrived and his whole reality changed.

Emergencies and disasters it seems to us, used to be very infrequent – events that happened to other people in far-off lands.  Not to people living in the 21^st century, using 21^st century technology, in the heart of modern Western society.  However, recent events have dispelled those myths, both here and abroad.  In some parts of New York commonplace occurrences such as going into a store and buying merchandise have become incredibly complicated.  Gas rationing and long lines, ATMs closed and some vendors requesting cash only transactions and exact change in many circumstances.

In Israel the situation is different currently in that banks are operating as normal in most places, but the shopping experience becomes vastly different when the consumer wants to spend the least time possible away from a safe area, doing errands.  The causes in Israel and America may be very different, but the bottom line course of action needs to be the same.

Emergencies do happen.  And much as you pray that they won’t happen to you, you have to prepare for that possibility and ensure that you have liquid assets that are easily accessible.  If you have cash in your local bank in some framework that allows for immediate withdrawal, you won’t be dependent on your salary, incoming payments or international transactions.  Yes, all of those things usually happen as they should and when they should, but not always…

Major financial events reduce the natural flow of assets internationally and prevent the normal , ie safe, orderly transfer of assets from one country to another in far greater frequency than we sometimes think. Your cash emergency financial plan needs to be able to protect you and your family in worse case scenarios, similar to emergency continuity plans that businesses develop.

OK, so what are you supposed to do?  Just to clarify, this asset liquidity doesn’t mean that you need three to six months’ worth of cash under your mattress.  That is neither safe nor necessarily practical for the average person (although having some cash available is not a bad idea at all).  You need to organize your money with your bank or investment house so that you can have immediate access to a specified amount of cash, or funds on a daily deposit.  If you don’t have that kind of money in liquid savings, see what assets you do have that can be converted into an emergency reserve.  If you have no savings at all, maybe there are lines of credit that can be opened with your bank or with the manager of your pension fund, or Keren Hishtalmut, who often can lend you money based on your long term savings.  If you anticipate that you’d find yourself under intense pressure if you couldn’t work for a month or two, or even if you couldn’t access your money abroad for a few months, then you need to rethink your financial setup.  And don’t put it off – living from day-to-day or month-to-month is inadvisable in a normal state of affairs, and it’s certainly not something that you want to face when confronted by an emergency.

You can’t prepare for every eventuality, but you can reduce your stress levels by ensuring that your financial resources are available when you need them.  Avoid the need to sell your assets at fire-sale prices and it will help you avoid major financial losses, especially when cash-flow is really the issue.

So much of our life is out of our control, much as we kid ourselves otherwise.  Disasters and emergencies show us how powerless we are in so many situations.  But you can take charge of your finances and make every effort to ensure you have sufficient emergency financial reserves.  May you never need them.