Life's Financial Emergencies
Texas CPAs Provide Six Ways to Prepare for the Unexpected

DALLAS — Life is full of unknowns. While it’s unsettling to think illness, job loss, or a disaster could drain your financial resources, financial emergencies can and do occur. The Texas Society of Certified Public Accountants says the good news is that with a little planning you can minimize the impact of an unexpected financial crisis.

1. CALCULATE YOUR NET WORTH
Looking at your total financial picture is a simple way to know exactly where you stand. Take the time to prepare a net worth statement, which will give you a realistic sense of your assets (what you own) and your liabilities (what you owe).

First, catalog your assets. Your assets include balances in your savings, checking, and other bank accounts; the market value of any stocks, bonds, mutual funds, and Individual Retirement Accounts; and the cash value of any insurance policies you own. Include in your assets the fair market value of your home (less your mortgage amount) and other real estate and personal property.

Next, you’ll need to list all debts, including any outstanding balances on your mortgage, credit cards, and any car, personal, or student loans. Subtract your total liabilities from your total assets to arrive at your net worth. This exercise also makes it easier for you to identify assets that could be used to meet your debt obligations.

2. BUILD AN EMERGENCY FUND

Most CPAs agree that it’s a good idea to create an emergency fund equal to roughly six to nine months worth of living expenses. The right amount for you depends on your financial circumstances.

It will take time and a few sacrifices to set aside that amount of money, but it’s worth the peace of mind it provides in an emergency. Using an automatic savings plan to direct money to your emergency fund is a relatively painless way to save.

Be sure to keep your emergency funds in an easily accessible account, such as a savings or money market account. While the interest rate may be low, bear in mind that liquidity is the goal for your emergency fund.

3. BE ADEQUATELY INSURED

One of the best defenses against financial difficulties is a well-formulated plan for insuring yourself and your possessions. Review your home, car, life, and medical insurance polices regularly to ensure sufficient coverage.

Disability coverage is one area that many find themselves underinsured. Disability insurance replaces a portion of your salary if you become disabled and cannot work. Since people in the workforce are more likely to be disabled than to die prematurely, disability insurance is vital to financial security.

4. IDENTIFY POSSIBLE LOAN SOURCES AND APPLY NOW

If you own your home, a home equity line of credit can help you through a financial emergency. But it’s important to apply now, while you’re in good health and employed. Unlike a home equity loan, a line of credit is there if you need it.

Another advantage is that you can write off the interest on your home equity debt up to $100,000. Just remember that you could lose your home if you can’t pay back money borrowed against it.

5. KEEP UP TO DATE WITH YOUR RESUME AND YOUR CONTACTS

It’s always a good idea to have a current resume prepared in case you lose your job. You should also work to maintain a network of key contacts, including friends, associates, and colleagues whom you can turn to during your job search.

6. MEET WITH A CPA

Preparing for life’s ups and downs isn’t easy. A CPA can work with you to review your plan and ensure that you are well protected in the event of a financial emergency. Your ability to claim a deduction is determined by your filing status, your combined adjusted gross income, and whether or not your spouse is covered by a qualified employer plan.

PERSONAL FINANCE INFORMATION

For specific personal finance information for your stage in life, visit www.ValueYourMoney.org. While there, sign up to receive a free monthly electronic newsletter with personal finance tips on variety of topics.

CONSULT WITH A CPA

If you have questions regarding the process of filing for an extension, consult with a CPA. When you are ready to file, he or she can help you prepare your tax return as well.

PERSONAL FINANCE INFORMATION
For more information about personal finance issues, visit www.ValueYourMoney.org. While there, sign up to receive a free monthly electronic newsletter with personal finance tips on variety of topics.

ABOUT TSCPA
TSCPA (http://www.tscpa.org) is a nonprofit, voluntary, professional organization representing Texas CPAs. The society has 20 local chapters statewide and has 27,000 members, one of the largest in-state memberships of any state CPA society in the United States. TSCPA is committed to serving the public interest with programs that advance the highest standards of ethics and practice within the CPA profession.