The Rogue Wave – 5 Tips to Avoiding a Financial Collapse During An Unexpected Crisis

Photo by Leo Roomets on Unsplash

In the ocean the Rogue wave is unexpected, it’s larger than anything seen coming before it and it’s extremely dangerous, threatening and likely to capsize even the largest ocean liners.  Rogue waves are nearly impossible to predict.  They occur when a series of waves traveling together transfer their energy inward to the middle of the group creating a very high, steep wave.  William Van Dorn, professor emeritus at the Scripps Institution of Oceanography told Boating Magazine that neither the speed of the boat nor the boat handling skills of the captain will help once this monster occurs.

What do we do when a Rogue Wave strikes in our daily life?  Unexpected deaths, divorces, injuries, business’ closing, involuntary job losses are all things that could come out of no where and devastate our lives.  Its the collateral effects, however, that we can control and monitor so that we can mitigate the effects of the event.

CNBC did a study in January 2019 reporting that only 40% of American households could cover an emergency expense of $1000 without digging into their retirement or adding to their debt.   How we plan our financial lives can be complex.  Here are four simple and very important tips to avoiding financial disaster if a Rogue Wave hits you:

  1.  Know your actual needs versus your wants and keep the cost of those needs as low as possible.  In the event of an emergency, your needs will be low and you’ll be able to expense with some of your “want” items before making adjustments to your needs. Be honest about what your needs are, we are talking about survival needs.  LivingAFrugalLife.com has a wonderful Needs v Wants worksheet to help you in this exercise.  When the emergency occurs you will want the flexibility that a little planning will provide for making sure you can survive both the emergency and your finances.
  2. Keep one or two sources of available credit open.  It can be good for your credit score and can provide a means to an end if you are presented with a situation that is rushed or timely (get your car fixed or pay an unexpected vet or dental bill)  Try to always get your credit paid off as soon as possible, but always keep some credit available to you for emergencies.
  3. Invest in adequate insurance for very important things.  For instance, health insurance, no matter how healthy you feel is of utmost importance.  You never know when you’ll be sitting in an airplane with someone who is sick, or hit in the head with a transient baseball near a park or any other number of sickness’ or injuries that could occur through no fault of your own.  Being sick or hurt is one of the most common causes of financial disaster so plan and insure.
  4. This really should be #1, but better late on the list than never – Fund an emergency savings account.  Ideally you’d like it to contain at least six months of your monthly budget, but aim for six months of your monthly needs first and expand from there.  I know it can be difficult to save but do it anyway.  Have an auto debit to your savings account for 10% of your earnings each pay period.  If you need a little discipline to not spend your savings indiscriminately, sign up for a savings account in an online bank.   Bankrate.com analyzes some of the best accounts and interest rates for online banking.  Acorns.com is also useful.  The app rounds up my purchases to the nearest dollar and withdraws that amount from my funding source (my bank account) and invests it for me.  I happens in such small increments like $5-$7 per week that I never really notice it.

Don’t let life’s unexpected catastrophes make your life and your finances capsize you.  A little bit of management and savings will keep those waves small and manageable.  As always, you can always comment or contact us with your questions or concerns on this issue.

We’ll chat again soon.

Susan

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