Emergency funds and diversification
With all the talk about Katrina rebuilding, it occurs to me that most of my so-called-wealth is my home. It seems to me that I should make sure that the largest holding in my assets is not my house. I should keep a mixture of my fully-insured home, investments, and cash savings. Is there a suggested percentage out there? Should I be striving for a 50%-50% home-to-everything-else mix? If like Jane Dough, I should have $3-4 million for my future retirement, I certainly don’t believe any home I live in will be worth $2 million in 30-40 years. I really can’t fathom that.
I keep thinking about a friend whose parents lived 4 blocks away from the first levee break. A few years ago her folks were given the option to insure their home against floods for over $1 million, which they decided to do. They were quite lucky compared to most folks and were able to get a payout immediately from their insurance company, though they lost everything. My friend unfortunately had some of her possessions in storage there and gets nothing from the insurer to replace her belongings.
I wonder out loud here, should the Pentagon ever get attacked again, what kind of insurance should I be carrying? I don’t live that far away from the world’s largest office building. I live inside the DC Beltway. If I had to jump into my car and drive away as fast as I could, what kind of access would I have to cash instruments, credit, my investments if I couldn’t return home for several months?
It occurs to me that I am awfully lucky to bank online and to have investment assets I could draw upon from a distance. My banks have out-of-state branches where I could present my ATM card and draw some cash. So many urban poor use those usurious check cashing services because they don’t have bank accounts. What can they do if there is no electronic way to store funds? What if I need to escape when the Vogons come to destroy Earth, or I decide to head off-world to Ballybran? Will my credits be accessible on the shuttle flight? (An attempt at levity. Please laugh here.)
It sounds weird to think about what an ‘emergency fund’ is. Should I throw $200 cash into my trunk with my flashlight, road flares, emergency blanket, etc? It sounds goofy and paranoid, but I think it’s worth contemplating in light of my location. At the very least, I could pay a tow truck driver if need be.
What do all you folks out there in TV Land think?
JaymeKnits wrote:
I completely understand your fears here. Living near DC we have to assume that being attacked is probably a matter of when and how bad not an if. It’s sort of like California and earthquakes.
All I know is what we have decided. We have copies of important paperwork in storage with family on the west coast. We can access most of our money electronically if we need to. But most important is that we have family who we could stay with and would be supportive if anything terrible happened.
Posted on 21-Feb-06 at 3:03 pm | Permalink
Kirby on Finance wrote:
I’m not expert on issues like these, but I think you may be a bit too worried about the percentage of your net wealth tied into your home.
You home should be the bedrock of your retirement portfolio right now. Sure, it’s a large percentage of your totally assets, but keep in mind that you’ll be adding to the other areas as you age.
You ought to have an emergency fund that’s accessible away from home. Just keep adding to those accounts that you mentioned which have the ATM cards.
You’ll be fine!
Posted on 22-Feb-06 at 11:46 am | Permalink
mapgirl wrote:
Thanks for the ideas you guys have posted here. I have accessible funds out of state already. I joked around last night that if I need to flee DC, I can go to Front Royal to a friend’s house. Now I just need to put those mortgage papers at my mom & dad’s safe deposit box. Ooh. That feels like another post.
Posted on 23-Feb-06 at 9:02 pm | Permalink
Claire wrote:
I confess that after Katrina I went out and bought two of those five gallon jugs of water. They’re now taking up space in my basement. And I started keeping $100 cash in the house. What good is an ATM if the power is out? What if you don’t have any gas in your car and you need to get out of the city?
Luckily my area is unlikely to be struck by natural disasters, and it’s sort of a has-been city so I doubt it would be high on terrorists’ agendas. Without getting too paranoid it makes sense to think of these things.
BTW, I agree with Will about the house to other assets ratio. I think early in life it’s not surprising that your house would be a big percentage of your net worth. The trick is to not buy more house when you have more money, but to invest in other things.
Posted on 26-Feb-06 at 9:41 pm | Permalink