On Monday morning while driving to Boston for a meeting, I was listening to the news while waiting for the start of the award-winning Helen Glover Show. Helen came on at 7:00 a.m. sharp, and even though she greeted listeners with the same energy as always, you could immediately sense that something was different this morning. Her opening emotions made listeners sit up and pay attention to what had happened to her over the weekend, which she spent in New York City at the Marriott in Times Square, right across the street from the failed Faisal Shahzad van bomb. We learned how, just like that, a random act of terror turned her Saturday evening upside down. Of course, the terrorist had hoped to change much, much more than that.
By this time, I was stuck in rush-hour traffic heavier than I ever remembered when I used to commute to the city. I approached a flashing sign that read “Boil Water.” Thanks to a ruptured water-pipe collar over the weekend, Boston and 29 surrounding communities had no clean public drinking water. All of a sudden I felt like I was driving into the apocalypse. Of course, I got thirsty the minute I read the sign and reached for my bottled water. As I swallowed the first gulps, I received piercing looks from the other drivers around me and felt like I was dumping a bucket of water over my head in the middle of the Sahara.
These stories are two examples of how quickly your life can change. Helen’s weekend scare is a reminder of the randomness of acts of terror. The “boil water”emergency made me think about the domino effect such events create in your mind. If the water’s not drinkable, what if my car breaks down and I’m stuck? What if we lose power or gas and can’t boil water? And the scenarios go on and on and on. That’s where panic sets in and why there were lines to get water at stores around the city.
This leads me to some advice on your current cash situation. Over the short term, why not always make sure you have enough cash on hand to get you back to or away from home? In a localized emergency, $500 could make a big difference. Over the intermediate term you may want to make sure you have enough cash to handle living expenses for six months. Is $25,000 the right number? Only you know. No need to include mortgages and car payments, since they won’t be at the top of your to-do list in a time of crisis. And over the longer term, make sure you have reduced your debt and have a sufficient amount in short-term corporate bonds (a simple formula is to use your age as an estimate of the percentage of your portfolio that should be invested in bonds) to prevent you from being panicked out of the stock market.
The right amount of cash will keep you from panicking and hopefully keep you safe. Use some of these ideas to craft a plan that best fits your situation. That way, you will be ready to handle, with a clear head, an emergency others never planned for.
E.J. Smith is Managing Director of Richard C. Young & Co., Ltd. an investment advisory firm.