APRIL ISSUE Smart Money Anticipates Emergencies Written by PJ Wade • Homeowners don't always like surprises, especially at this time of year. Spring storms, flooding, winter-damaged roofs, heaved driveways... can all mean money to real estate owners. Unexpected home emergencies can include covering insurance deductibles, accidental falls which affect incomeearning, and broken anything. Add these unplanned cash grabs to what life brings in other areas, and an emergency fund is a necessity, not an option, to preserve financial stability. It's not always the cost that's the main problem when emergencies strike. It's the inconvenience and financial surprise that cause trouble. Suddenly, money is required and must be spent without delay. Although homeowners (and tenants, too) know that stuff happens and emergency funds make good sense, a recent study of more than 8200 employees revealed that almost half resorted to hopeful thinking instead of "saving for a rainy day" and the unexpected. California-based Financial Finesse, a provider of unbiased workplace financial wellness programs, which does not sell products nor manage funds, annually releases research on employee financial issues. The 2012 Study revealed a "mild backslide" in cash management with increases in problems managing cash flow, paying off monthly credit card balances, avoiding late fees, and setting up an emergency fund. Liz Davidson, CEO and founder of Financial Finesse, said "Ninety-one percent of employees in 2012 said they contribute to their 401(k) plan at work‌ At the same time however, only 51 percent of employees say they have an emergency fund in place to cover unexpected expenses. That leaves 49 percent of the employee population vulnerable to tapping their retirement savings because they can't afford expenses outside of the norm." Financial Finesse Think Tank Director Greg Ward emailed: "The real cost of taking [retirement savings] out depends on a number of factors, including age, whether or not it is borrowed or taken as
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a hardship, and investment performance. For example, if a 35 year old has to take $10,000 out of their retirement account as a hardship withdrawal, not only will they have to pay taxes and a 10% penalty ($1,000 in this example), but their account would be over $100,000 less in 30 years assuming an 8% rate of return. Here is a calculator that can estimate the cost of taking a plan loan. In the end, it is really a question of opportunity cost, and how long it is until retirement."
central air in? Safety procedures at home and elsewhere can reduce accidents and related emergencies that can affect income.
Whether you're a homeowner or a wannabe, your practical knowledge of money and related issues, or your Financial literacy has a big impact on success with real estate. Homeownership remains the largest single financial venture for most Americans, so financial literacy represents essential real estate knowledge. Budgeting and other money management strategies are vital to managing your home and vacation property, just as they are to career planning, and starting and operating a home-based business.
Don't waste money on symptoms A wet basement wet basement does not automatically mean the foundation has to be dug out. Clogged gutters and poorly-graded landscaping can introduce water to walls and create a wet interior. These issues are much cheaper to fix, too.
In all these situations and more, what you understand about money can add wealth even with a modest income. Lack of "money smarts" can cost you a lot. If you are earning big money, you won't automatically be successful at wealth building. In contrast, those with modest incomes or small businesses can build wealth, even fortunes. Not that this all starts with creating an emergency fund, but this is one excellent first step in perfecting money management skills. It's not how much you earn, but how much you keep that always matters. If workplace financial literacy programs are ignored by employees, employers may discontinue them. Make these programs useful by challenging service providers to share practical, actionable suggestions and strategies that go beyond "save 10% of your paycheck" basics. Smart Money Strategies Prepare You for Emergencies The goal is never having to use it Regular home maintenance and paying attention to details and strange noises can head off many expensive emergencies. What shape is your furnace or
Don't reinvent the wheel What expense has a neighbor with a home of similar vintage faced recently? Maybe it's finally time to listen to your parents' time-tested advice. Discover what causes common problems and expect them to happen. Then, the question is, "When?" and that you can prepare for.
Who's the local expert? Before an emergency, collect contact information for local repair experts who friends and neighbors turn to when problems pop up. If your house is past its prime, you may want to have one or two "go to" guys evaluate your roof, gutters...and suggest practical minor repairs that delay or end the threat of expensive breakdown. If they're the gems your friends swear they are, these professionals will not take advantage of you, but get second opinions for anything major just in case. Media emphasis on the state of the economy can distract us from the importance of improving our cashmanagement knowledge and skill. One thing remains certain: unexpected, expensive emergencies will continue to pop up. What are you going to do about this?
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