Preparing For A Sudden Change

It was a great weekend for college football! During the weekend, and throughout the season, I have picked up on a new phrase sports announcers like to toss out after turnovers. They refer to a quick turnover by the other team’s defense as a “sudden change,” situation and it appears statisticians are even looking to track how well team defenses react in sudden change situations.

In the world of personal finance these “sudden change” situations look less like interceptions and fumbled snaps, and more like job layoffs, illnesses, and losses of a loved one. Like any good defensive coordinator, you have to be prepared for these situations.

Be Prepared Financially

Have a solid emergency fund in place. I have seen first hand the devastating effects of a major illness on a family’s financial situation. Imagine being unable to work for the next 12 months because of a major illness or injury, and having very little to cover the six-month waiting period required by most disability insurance plans. Suddenly, there is no money to cover the mortgage, the car payment, the utilities, and even most grocery items become optional.

Insure yourself by saving at least six months of expenses in a high interest savings account. I used to subscribe to the standard 3-6 months worth of savings advice, but after my own family’s experience I now recommend a full six months (unless you have a stellar short-term disability plan).

Put regular expenses on autopilot. I am a big proponent of using auto-drafts for regular, monthly expenses. Things like utility payments, recurring subscriptions, etc. may be put on auto-pilot which helps avoid late payments, especially in an emergency situation. One note about auto-drafts; I do not recommend using the draft service provided by credit card companies and other creditors. If you fall behind on your payments the creditor might clean out your account to collect the debt, and this is especially problematic if you bank at the same place you owe money. Just something to think about.

Be sure you have a solid long term disability plan. Life and health insurance are two of the most highly recommended financial products out there, and for good reason. However, chances are much greater that one of us will become disabled before we die. In this case, it is vitally important to have a disability insurance policy in place so that at least a portion of your income continues even if you become disabled.

If you are currently employed with a large employer, chances are you have the opportunity to participate in group disability policy (some employers even pay for some or all of the premium as part of employees’ benefit packages). If you are self employed, or currently unemployed, I encourage you to shop for a disability insurance policy on your own.

Have Financial Records in Order

Safely store insurance policies, and share the location with a trusted friend or loved one. In times of crisis it might be difficult to remember where you have stashed insurance policies and other important financial documents. In fact, depending on the severity of the situation, you may not be able to tell anyone the location of the documents. For this reason, it is a good idea to tell a loved one where you have stored insurance policies, wills, and other important files.

Create a “Just in Case” file. In addition to the location of important documents loved ones may also need to know things like account numbers, bank account information, info on outstanding debts, etc. One of the things that has really come in handy during my Mom’s medical crisis is that she created a document that listed all account numbers with instructions for handling her financial affairs. We never dreamed we would have to refer to it, but it has been a big help during her lengthy hospital stay.

Be Prepared Physically

The better shape you are in, the easier it is to handle stress. I had good intentions of losing some weight as the weather cooled in the fall season. However, the crisis that hit our family kept me out of the gym, and in the fast food restaurants and hospital cafeterias. In fact, I gained a few additional pounds during the first eight weeks. I went through a range of emotions during those first few weeks, but the one thing that was constant was the amount of stress I was feeling. I couldn’t sleep, I couldn’t relax, I was always tired, and I felt myself slipping into a serious bout of depression.

Then it occurred to me that my poor physical health limited my ability to be a good caretaker. In fact, it interfered with my handling of the entire event because I wasn’t in shape to withstand long hospital stays and keep a tough schedule. I guess I wasn’t as strong as I thought I was. When I recognized this, I immediately began to make time to hit the gym, and have been eating a cleaner diet–even opting for things like salads if I must eat on the run. I feel better now, and am not nearly as stressed out as I was there for a while. Lesson learned–stay ready so you don’t have to get ready.


  1. It’s easy to put off thinking about the possibility of tragedy. We’d all like to think we’re immune to such awful circumstances. These are great tips and a clear way to get things in order for the unexpected. Thanks.

  2. I used to do auto-payments of bills until my employer messed up my bonus from ealier this year. If you keep a large balance in your checking account then its fine. Most of my direct deposit goes to ING Direct.

    @FrugalDad who did you want to win the SEC Championship. What do you think of Gators/Sooners

  3. @weakonomist: I went to school at Auburn, so I was hoping for a 0-0 tie. Gators/Sooners should be a good match-up. I do wonder what the over/under will be–I’m guessing maybe 80? Then again, both offenses could get stale over the next month and wind up in a defensive struggle.

  4. What a timely post. My family is preparing for a major transition. The cost of living here in South Florida is driving us out. If an apartment in a not-so-nice neighborhood rents for $900/month, we have a problem.

    I must concur with taking care of yourself physically. The events leading up to our decision to relocate has caused plenty of stress. I am eating much higher quality food and spending less to do it! Of course, sleep is still an issue, but eating well and exercising mitigates the effects of getting less sleep.

    It’s actually therapeutic to watch your finances more closely during these times. It seems like it would add to the stress, but eliminating the big question mark next to your finances is a big help too.

  5. I am still working on the emergency fund. It’s really difficult to create this kind of funds since it doesn’t take a lot of emergency funds before it’s all gone. At this time, I don’t worry about job loss but decrease in financial aid seems to be a possibility. That means that I will have to work more hours to be able to afford school. In this economy, if you don’t get hit in the right, you are sure will get a punch in the left. Oh, when will it ever end this recession…!

  6. Great summary for the challenges ahead.

    One great way to be prepared for job layoffs, is to figure out who you would apply to for a new job way before anything happens. Also, get your CV up to date now whilst you have less to worry about than no job.

  7. Great post.

    Personally, I have made a couple of other items available in my documents:
    (a) web addresses and user names / passwords for all of our financial institutions. This is stored in a very secure location, but known to my spouse.

    (b) make sure that ALL financial records relect my spouse and children’s names as beneficiaries (updating the children as they are born)

    (c) making a short letter with a list of names of friends that we have who can help my spouse make decisions and be a shoulder to lean on ( a friend who is a mechanic, another who is a good “fix-it” kind of guy, etc.). This wa she has someone that she can go to if she needs adivce.

  8. Eight years ago, my husband went to work one day and basically never came home. He suffered a massive anuerism and lapsed into a coma until his death a year ago. When I looked into our finances, I discovered there were no savings and plenty of debt. The kids and I had each other, that was the bright spot. I now save every extra penny possible and put it into a savings account. I am still paying off debts from eight years ago. Please be aware and speak to your spouse about ‘what if’ scenarios. We live extremely simply but contentedly.

  9. I remember the fast food & hospital cafeteria trips we made when my parents were hospitalized. Your point about taking care of YOURSELF is very important. When worry consumes us it affects our eating habits and sleep. It’s important to care for the CAREGIVER because those that are responsible for the patient have to be alert and able to make decisions. Every patient should have an advocate when they’re hospitalized. I’m sure you see it, as we did–the squeaky wheel does get the grease (or their linens changes, pain meds, etc.) I’ve always felt my heart tug when I see people that have few visitors and no-one to help them interpret what the professionals are rattling off a 10,000 miles an hour. It’s a scary place, and mistakes happen.

  10. Remember to get enough life insurance and also disability insurance as part of one’s frugal planning. These are the income replacement portions of financial planning. They replace the income to the family if one dies and one’s one income if one has a long term disability. Where would income come from if these situations occurred without these “risk replacement vehicles.”

  11. I have to agree with a 6 month emergency fund. A couple of months ago my mother inlaw had an accident. She lives in a country where there is not medical insurance or scheme. We had what we thought was a pretty good nest egg – $20,000. In a matter of 6 weeks we had $1,000 left due to those unexpected medical expenses, car repairs and some unexpected large bills. We had scrimped and saved since September and this weekend my husband had to fly out again to help his family. Hopefully we are not back to square one.

  12. maclynx –

    I am sorry to hear about your mother in law. I hope it all turns out well. In a way, though, having the 20K did act as a buffer to keep her out of debt, which would have just added to the stress.