Monday, June 14, 2010

It Just Isn't Possible to Prepare Enough Sometimes

What happened to them is terrible and shows one of the biggest holes I've seen in many preparation plans. 

I know exactly what they went through. We were hit by a drunk driver that crossed the median of the Interstate. My pregnant wife and I ended up in the hospital for a month and, unusually, the drunk was died on scene. Miraculously, we both had the same insurance company and when the hospital called they got agents who were sitting back to back, which expedited things nicely. 

Our emergency fund was depleted in the helicopter and ambulance charges just to get to the hospital. Helicopters are expensive. Ending up in the hospital tends to be very expensive. The cost of healthcare is greatly distorted because of how insurance companies and the government handle claims.

A car crash is one of the more expansive accidents that can happen to you. Cars are very safe nowadays and you tend to survive things that used to kill people outright but injuries can be worse because of it.

I once read that you could self-insure yourself if you had $1 million in the bank. While that is a great goal, you need to build up to it. 

Most advise you get for an emergency fund is 2-3 months of expenses. I prefer 1 month of expenses per $10k salary per year you make. 

Take it to the next level for a crash fund. The trouble is that a crash fund would have to be by definition pretty big. We're talking about $100k+ here. That would be 2-3 years salary for an average person. You can't do that very quickly at all, unless you hit it big on the lottery or something. 

Cash, CDs, gold, silver and other commodities, and the like. Right now stocks and bonds are not looking so great right now but they are options too things will change and they may be valid choices again.

The easiest way to do this is to make it a combined fund: retirement and crash. Don't put all of your funds into locked accounts like an IRA or 401(k) keep some of it liquid and semi-liquid.