You don’t have to be a Boy Scout or Girl Scout to adopt the motto "Be prepared." While preparation can’t prevent all of life’s misfortunes, it might help you recover faster if things go wrong. We took some common scenarios and compiled advice on what you can do to prepare for such an event and how to handle it if it actually happens.
You lose your job
Before it happens. Try to have as little debt as possible. Pay off your credit cards, or better yet, avoid carrying balances to begin with. Aim to keep your fixed expenses, such as your mortgage payment or rent, insurance premiums, and so forth, at levels you can manage for six months to a year with limited income, such as unemployment insurance and savings. We recommend having a liquid emergency fund that can cover your projected expenses for that long. If you’re like a lot of people, that’s a goal you’ll have to work up to gradually.
Remember that losing your job often means losing your health benefits or having to pay the entire premium yourself during any period you’re eligible for continued protection under COBRA rules.
If it happens. Pare your spending back to necessary expenses only. Figure out how long you can meet your expenses without additional income. That will probably be a factor in deciding whether you can hold out for a job that fits your qualifications or have to settle for something else. Consider switching to a spouse’s health plan, if possible.
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Your wallet is lost or stolen
Before it happens. Remove sensitive information that you don’t need to have with you, including your Social Security card and personal identification numbers for your ATM cards, online accounts, and so on. Limit the amount of cash you carry. Photocopy or make a list of the items you keep in your wallet, including card numbers and contact details. A free Wallet Recovery Kit, at CreditCards.com, provides helpful forms for recording the info. To find it, type "wallet recovery" in the website’s search box.
If it happens. Run down your prepared list and start calling those card issuers.
Your car's a lemon
Before it happens. Many states have so-called lemon laws, which spell out remedies when a new car you buy fails to meet minimum quality standards. Some states also have similar laws covering used vehicles purchased from dealers. Typically, for you to make a successful claim the vehicle must have a problem with certain components, have undergone a minimum number of repair attempts within a given period, or been out of service for a specified number of days, which don’t have to be consecutive. So it’s vital to keep repair records and document the time the car has been out of commission, even if the problem is covered by the vehicle warranty. Search the Web for specific information about your state’s law. One resource is CarLemon.com.
If it happens. Contact your state consumer officials to find out how to use your state’s lemon-law program. You can find a list at USA.gov. If your vehicle isn’t eligible, you might still consider consulting a consumer attorney. Go to naca.net to find one in your state.
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You lose your cell phone
Before it happens. Install one of the many free or low-cost software programs or apps that will help track your phone by GPS, lock it, and even erase sensitive data remotely. They include the FindMyPhone app for the iPhone, iPad, and iPod Touch, and Lookout Mobile Security for iPhone and Android. (We haven’t tested any of the apps or programs yet, but we’ve seen some good reviews.) Make sure you have complex passwords for websites and any apps you’ve installed so someone can’t easily access your accounts. Check with your carrier to find out how to make a backup of your address book. And as a general practice, hold on to your old phone when you get a new one. You might be able to use it as a replacement for a lost phone until your contract is up and you’re eligible for a new model at reduced cost.
If it happens. Dial your cell number; the phone may be lying beneath your couch cushions. Or a good Samaritan may have found it. If you’ve installed security software or apps, activate the protection. Contact your provider to prevent anyone from using up your minutes and racking up charges. Weigh the cost of replacing the cell phone before the contract ends with that of reactivating your old one.
The power goes out
Before it happens. The best solution is to have a whole-house or portable generator. Make sure it’s properly installed, you know how to use it, and it’s fueled up. Another option is getting a DC-to-AC converter to run small appliances off your car battery. Of course, you should also have flashlights, batteries, and a portable radio, perhaps a hand-crank rechargeable unit. If you don’t have a generator, your freezer or a cooler packed with ice will preserve food for a couple of days.
If you have traditional copper-wire phone service, which usually continues to operate during a power outage, have a corded phone handy (cordless models generally require electricity). If you have VoIP or fiber-based service, make sure you have a way to make 911 calls or otherwise communicate with the outside world. If it hasn’t already, insist that your telecommunications company provide you with a backup battery, which will give you as much as 8 hours of standby time. For added safety, try negotiating for additional batteries or buy them online. Read "Surprise! Your High-Tech Home Phone System Could Go Dead in an Emergency" for more details. Get a car charger for your cell phone so you can keep it powered during a prolonged outage.
If it happens. Unless you have a generator, move your perishables from your refrigerator into your freezer (but remember to put them back when power is restored or you’ll end up with frozen milk). Throw out refrigerated items that have been in conditions above 40˚F for more than 2 hours. One way to preserve the battery backup for your VoIP or fiber-based phone system is to unplug the backup battery to prevent it from draining while on standby and plug it in only when you make calls. You won’t receive incoming calls, but you’ll be able to make outgoing ones.
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A major appliance breaks
Before it happens. Keep copies of your warranties and receipts in one place. Sign up for a credit or debit card that automatically extends manufacturers’ warranties at no charge and use that for all your major purchases. Set up a special fund for product replacement and repairs, and use the money you otherwise might have spent to buy service plans or extended warranties.
If it happens. Even if the warranty has expired, contact the manufacturer or dealer. Also try Web searches with and without the model number using terms that describe what’s wrong. What might seem like a major problem may require a simple fix that others have found and posted, or there may be a recall or some kind of free repair.
If you need to call in a repair person, ask the manufacturer for a recommendation. Authorized repair shops may be more familiar with your model, have access to repair bulletins and other resources, and have the authority to make repairs under the manufacturer’s warranty.
If a part or the entire appliance fails in an unreasonably short time, try persuading the manufacturer to pay for the repair, or at least part of it. Depending on your state and the circumstances, both the manufacturer and retailer may be responsible for the cost under the implied warranty of merchantability, especially if the item is less than four years old.
Finally, use the warranty extension from your credit card or dip into your product replacement and repair fund.
Your house burns or floods
Illustration by: Christoph Hitz
Before it happens. Compile an inventory of your possessions using a spreadsheed or word-processing program or free inventory software, such as WhatYouOwn.org. Keep it updated and store a copy outside your home.
Create one or more emergency "go bags" to take with you if need to evacuate. The bags should contain cash, copies of important documents (including your homeowners insurance policy), and phone lists. You can find a complete list of what to put in the bag, compiled by the San Francisco Department of Emergency Management.
If it happens. Grab your go bag and leave. Call your insurance company, and don’t return until it’s safe.
Your computer files are lost
Before it happens. Back up your data weekly, monthly, daily, or even continuously depending on how often you save important information on your computer. Use one or more external drives, preferably with backup software that keeps them synchronized with your computer. For the best protection, encrypt the drives using built-in software or the free software at TrueCrypt.org. Keep the drives separate from your computer so you won’t lose them both if there’s a theft or fire.
If it happens. Once you repair or replace your computer, download or copy the backup files and you’re all set.
The IRS audits you
Before it happens. Keep tax returns and supporting documents for at least seven years, in some cases even longer. For guidance, go to irs.gov and search for IRS Publication 552, "Record-Keeping for Individuals." Keeping a calendar of tax-deductible expenses, such as mileage for business or charitable trips, can help later. For charitable contributions, keep dated receipts for cash gifts of $250 or more and for noncash items you donate, such as furniture and clothes. Donations worth more than $5,000 require a written appraisal.
When filling out your return, make notes of anything you’ll need to remember later. It’s a good idea to prepare digital copies of everything for storing on a computer and backing up outside your home.
If it happens. Don’t panic. Read the audit notice carefully. If it’s something simple, such as a request for additional information, try working directly with the IRS. If it’s more complex and you have a tax preparer, ask him or her for guidance. If the IRS requests a meeting, your situation might be more serious. If you have a tax preparer, let him or her arrange the time and place of the meeting.
Your car breaks down
Before it happens. Don’t wait until you’re sitting on the side of a road on a rainy night to figure out what to do. If your car is under warranty and the manufacturer provides roadside assistance, make sure the number is in your glove box and cell phone. The same goes for insurance companies’ roadside assistance. Another alternative is to subscribe to roadside assistance from AAA or another organization.
It’s a good idea to know how to change a flat tire if you’re physically able to do it. Roadside assistance might be unavailable where your car broke down or you may have to wait hours.
Assemble and keep a roadside emergency kit that includes a jumper cable or battery booster, flashlight, and cell phone if you don’t routinely carry one. For a complete list, search our website for "Emergency roadside kit: What to carry with you."
If it happens. Try to get the car off the road and away from traffic, especially if you’ll be trying to change a tire or otherwise work on the vehicle. Then simply follow your preparations.
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