From the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®


(June 1, 2006) -- Life is full of unknowns. While it's unsettling to think illness, job loss, or a disaster could drain your financial resources, financial emergencies can and do occur. The good news is that with a little planning you can minimize the impact of an unexpected financial crisis. The Virginia Society of CPAs suggests that you take the following actions:

1. Calculate your net worth.

Looking at your total financial picture is a simple way to know exactly where you stand. Take the time to prepare a net worth statement, which will give you a realistic sense of your assets (what you own) and your liabilities (what you owe).

First, catalog your assets. Your assets include balances in your savings, checking, and other bank accounts; the market value of any stocks, bonds, mutual funds, and Individual Retirement Accounts; and the cash value of any insurance policies you own. Include in your assets the fair market value of your home (less your mortgage amount) and other real estate and personal property.

Next, you'll need to list all debts, including any outstanding balances on your mortgage, credit cards, and any car, personal, or student loans. Subtract your total liabilities from your total assets to arrive at your net worth. This exercise also makes it easier for you to identify assets that could be used to meet your debt obligations.

2. Build an emergency fund.

Most CPAs agree that it's a good idea to create an emergency fund equal to roughly six to nine months worth of living expenses. The right amount for you depends on your financial circumstances.

It will take time and a few sacrifices to set aside that amount of money, but it's worth the peace of mind it provides in an emergency. Using an automatic savings plan to direct money to your emergency fund is a relatively painless way to save.

Be sure to keep your emergency funds in an easily accessible account, such as a savings or money market account. While the interest rate may be low, bear in mind that liquidity is the goal for your emergency fund.

3. Be adequately insured.

One of the best defenses against financial difficulties is a well-formulated plan for insuring yourself and your possessions. Review your home, car, life and medical insurance polices regularly to ensure sufficient coverage.

Disability coverage is one area that many find themselves underinsured. Disability insurance replaces a portion of your salary if you become disabled and cannot work. Since people in the workforce are more likely to be disabled than to die prematurely, disability insurance is vital to financial security.

4. Identify possible loan sources and apply now.

If you own your home, a home equity line of credit can help you through a financial emergency. But it's important to apply now, while you're in good health and employed. Unlike a home equity loan, a line of credit is there if you need it. Another advantage is that you can write off the interest on your home equity debt up to $100,000. Just remember that you could lose your home if you can't pay back money borrowed against it.

5. Keep up to date with your resume and your contacts.

It's always a good idea to have a current resume prepared in case you lose your job. You should also work to maintain a network of key contacts, including friends, associates and colleagues whom you can turn to during your job search.

6. Meet with a CPA.

Preparing for life's ups and downs isn't easy. A CPA can work with you to review your plan and ensure that you are well protected in the event of a financial emergency.


The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at


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