Preparing Financially for Disaster: Virginia Tax Holiday May 25–31

The Commonwealth will hold a sales tax holiday May 25–31, 2008, to encourage Virginians to prepare for the upcoming hurricane season (June through November). During this seven-day period, purchases of items designated by the Department of Taxation as hurricane preparedness equipment, including portable generators, will be exempt from the Virginia sales tax. Portable generators must be priced at $1,000 or less, and other eligible items must be priced at $60 or less per item.

Life is full of unknowns. While it's unsettling to think a natural disaster could drain your financial resources, 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 Certified Public Accountants (VSCPA) suggests that you take the following actions:

Organize your financial records

Organizing your financial and family records can save you time, money and trouble. Sort through the paperwork you’ve been collecting and move important permanent records, such as birth certificates, wills, property deeds and trust agreements, to a secure fireproof location off your premises. Other records can be organized within a file cabinet or whatever system works for you. Just be sure that your family members know where all your important paperwork is stored.

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.

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.

Be adequately insured

One of the best defenses against financial difficulties is a well-formulated plan for insuring yourself and your possessions. You should review your homeowner's insurance at the start of each year to determine whether or not your policy amounts are keeping pace with the increased value of your home. Also, review your car, life and medical insurance polices regularly to ensure sufficient coverage.

Identify possible credit line sources

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.

Meet with a CPA

While it may be time-consuming, preparing financially for disasters could save you significant time and frustration in the event of an actual emergency. Preparing financially for disasters may be time-consuming but is well worth it. A CPA can work with you to review your plan and ensure that you are well protected in the event of an emergency.

Consumers can find more money management tips and free resources at www.FinancialFitness.org.

The Virginia Society of Certified Public Accountants (VSCPA) is the leading professional association dedicated to enhancing the success of CPAs. Founded in 1909, the VSCPA has approximately 8,300 members who work in public accounting, industry, government and education. For more information, please visit the Press Room on the VSCPA Web site at www.vscpa.com, e-mail vscpa@vscpa.com or call (800) 733-8272. To search for a CPA in your geographic region, visit www.FinancialFitness.org and click on "Find a CPA."