When Things Go Very Wrong: Five Precautions to Take

Be prepared for anything and everything.

We've all learned the hard way that we must be ready for the unthinkable. Taking time to map out an emergency financial plan is a crucial step we all need to take. Here are five precautions you should take now to be prepared:

1. Have six months of expenses in savings. If you do that, you'll be in better shape than 99% of the population. But as you're building your savings, think about what you'd do if something happened tomorrow and your emergency kitty wasn't full. To determine the right savings plan for you, check out our calculator here.
2. Take inventory of assets you could liquidate. We're talking stocks, bonds, or mutual funds. (If you don't have six months of expenses saved, you should not be invested at all.)
3. Consider what jewelry or heirlooms you could sell.
4. Identify who you could turn to for an emergency loan. In times of crisis we need our friends and family. Talk about it with that person in advance.
5. Evaluate your investments. Are you taking too many risks with your "emergency capital"? This is money that you might need to support you and your family after a layoff. Keep your portfolio liquid enough that you could switch to income-oriented investments - we don't recommend any risk during times of emergency - to tide you over if you lose your steady income and can't afford to wait out a dip in the stock market.

Dolan Smart Money Move: Open up a home equity line of credit, especially if you think a layoff might be coming. We don't usually recommend tapping into your home, but this is a line of credit to fall back on if all else fails. The issuer will give you a line of credit that works like a credit card, but with lower interest rates and interest payments that are usually tax-deductible.

Don't use this line of credit unless you have no other choice. And we mean NO CHOICE. Take a job bagging groceries before you use your home as income. It's an emergency card to keep around. The reason to do this now is that if you should happen to find yourself out of work, it will be harder to get credit, so take out the line of credit while you're working, then stash it far from temptation's way.

These are basic precautions that everyone should take. We hope you'll never have to use them. But if you do, you'll be glad you've got a plan in place to get you through the difficult times.

For more tips on financially protecting your family, click below:

• Vital Information You Must Have About Your Parents Finances
• How do the Dolans Manage Their Finances
• Avoiding Long-Term Care Disasters