Does Your Family Have An Emergency Plan?

By Pinyo, on October 22, 2007

Last week Glblguy wrote about a Guideline Budget and Lynnae’s husband lost his job (sorry about that). After I read the two posts, I realized that a good budgeting plan could be a great blueprint for an emergency plan as well. It’s one thing to have 3 months worth of expenses saved as emergency fund, but how many of us actually have a plan to reduce our expenses to make that fund last longer?
Emergency Exit
Photo from Image*After

Our Emergency Plan

I thought Lynnae did a great job of outlining what she is planning to do. I would like to go through the same process and outline what I would do if I lose my job using the Guideline Budget as a template:

Housing — Mortgage payment, property tax, home insurance, and basic utilities like gas, electricity, and water are non-negotiable but we could trim our utilities expenses. However, I could cancel my home telephone and save about $50 per month — and just use our cellular phones instead.
Food – Stop eating out and buying less expensive food would save us about $400 per month. Of course, non-essential food like beers, sodas, ice cream, snacks, etc. would be gone as well.
Auto — Stop traveling by car would save us about $260 per month, and canceling our car insurance would save another $220 per month
Insurance — Aside from the home and car insurance discussed above. I would spend the money to keep our dental and medical insurance active through the COBRA program (1), and my term life insurance would go away with my job (2).
Debts – Any debt would go into the minimum payment only mode. This means any balance would incur finance charge; however we could call around to see if we can get any 0% no-fee balance transfer deal.
Entertainment – Stop all entertainments — i.e., no more going to the movies, eating out, hosting parties, traveling, etc. Moreover, I would cancel my cable television and save about $70 per month. The only thing to keep is our Internet connection, so that we could do online job searches.
Clothing – Stop buying new cloths and stop wearing anything that requires dry cleaning.
Savings – This would invariable stop while there is no income. Our current savings include a 401k, two Roth IRAs and a 529 plan.
Medical — This would not change, especially while COBRA is in effect.
Others – nothing else come to mind right now.

Based on this list, we can trim about $1,000 off our monthly expenses in case of emergency (not including the amount earmarked for savings).

Some Homework

Based on the list above, I think I have to do a bit of homework:

Find out what COBRA would cost me if I lose my job
Look for term-life insurance independent from the one offered by my job. May be I can save a few dollars, but the important thing is it doesn’t go away with my job.

Does your family have an emergency plan?

This article was featured in the Carnival of Personal Finance #124 hosted by Millionaire Mommy Next Door.

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12 Comments

Lynnae @ Being Frugal
October 22, 2007, 6:34

COBRA was going to cost us upwards of $1000 a month when my husband lost his job in May. Yes, that’s twice in one year. We’re on a roll this year!

Unfortunately this time around, he hadn’t been on the job long enough to obtain insurance through his job.

An alternative to Cobra is to apply for your own health insurance. If you’re in good health, that’s probably the best option. It’s a lot less expensive than COBRA.
Mrs. Micah
October 22, 2007, 7:15

Dropping auto insurance would not be a good idea unless you’re never ever going to drive during this period (and unless you live in a perfect area, that could put a damper on interviewing). Also, if you pay biannually, for instance, it actually doesn’t cost you anything to keep it until right before the next renewal. My $.02.

We’d probably do something similar. We have at least 2 months living expenses and we’re working on getting a full 3. If we could eat for free then we have 2.5 months’. (And I know we could find ways to get close to free.)
Mark @ TheLocoMono
October 22, 2007, 7:19

Excellent article, you really covered a lot of areas including one that most people often overlook, the COBRA. I will have to read Lynnae’s article now.

It sounds like you and your wife are at a good age for your own insurance, low 30’s. Doesn’t your wife’s employer offer insurance?
Pinyo
October 22, 2007, 14:37

@Lynnae – wow, that some luck. I will have to do my research on COBRA. I didn’t realize it was that expensive.

@Mrs. Micah – I believe insurance company will refund the pro-rated amount — I will have to check. I would only do this as a last resort because if I decide to have car insurance later on, the premium will most likely go up because of interruption in coverage history. However, if I have to choose between survival and having a car insurance, it’s not a difficult decision.

You’re right about some people cannot afford to lose their car because where they live. I live in New York City, so it’s a viable option.

@Mark – Thank you and welcome to Moolanomy. I really need to look into private insurance, but I doubt it will beat what my company offers because they partially subsidize it.

My wife opted out of her insurance program.
Money Blue Book
October 22, 2007, 20:26

I wonder where family factors into all of this. Is it really lame to think about this I have wondered. What about asking for temporary backup assistance from the parents? When situations get critical, pride shouldn’t be such a concern. I would never ask my own parents for financial help unless I seriously needed it but it is comforting to know that they are there as my final security net.
-Raymond
hank
October 23, 2007, 21:44

Hey Pinyo – thanks for the comment on my bad investment decisions, I’ve had a lot, but in reference to this post, this might actually be something I can say is a GOOD investment. Have you been to ready.gov? It’s the plan layout from the ol’ US gov’t. Some good use of propaganda I’d say, but similar info indeed… Nice post!
Jason
October 24, 2007, 10:36

This is a great idea.
Pinyo
October 24, 2007, 10:52

@Raymond – I wouldn’t hesitate to ask my family and friends for help. I wouldn’t have it any other way if they were in trouble.

@Hank – I will have to check out ready.gov and thank you for stopping by.

@Jason – thanks!
Minimum Wage
October 25, 2007, 11:27

The only cutbacks I can think of are phone (about $40) and internet ($10). Since I have a dialup connection, cutting out the phone would also take me offline.
Pinyo
October 25, 2007, 17:16

Hey, Minimum Wage! Long time no see. How are you doing?

As far as $50 goes, that could be food for a week right?
Michael
January 19, 2008, 2:55

hi Pinyo, awesome tips and views, it was really shocking. I think now i have to run for my family insurance. i usually use my car for local shopping . but as what your calculations are showing, i can save one trip fuel for my car. Great article!
Make Friends, Earn Money
May 18, 2008, 3:31

Haven’t considered an emergency plan before in great detail, but when you think about it it makes sense really. I think i’ll spend some time this weekend drawing one up.

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