Are you financially prepared for natural disasters?
Financial preparation can provide a crucial lifeline once the winds calm down, the snow has stopped falling, the fires are out, and the earth has ceased shaking. In a world filled with uncertainties such as natural disasters and pandemics, being financially prepared is vital.
Last year while in Florida, I had my first hurricane warning. It was recommended to prepare the home’s exterior for the Category 4 storm and to have at least 3-days worth of essentials like water and nonperishable foods.
As I prepared for the hurricane, I was reminded of the importance of being financially prepared for disasters and pandemics.
These events can lead to significant financial burdens, from property damage and medical expenses to loss of income. Therefore, it is crucial to take proactive steps to bolster your financial resilience. In this article, you’ll learn ten steps to prepare financially for natural disasters and pandemics.
1. Complete a Personal Financial Analysis
Start by analyzing your financial situation comprehensively. Calculate your net worth, assess your income, evaluate your debt, review your cash flow, and examine your credit health. This personal financial analysis will provide a clear picture of your financial preparedness and highlight any gaps that must be addressed.
2. Have an Emergency Fund
Building an emergency fund is essential. Aim to save 6-9 months’ worth of basic living expenses in a fund that is easily accessible. Consider keeping this fund in an alternate financial institution or an online bank to ensure access during extreme situations when your local bank may be inaccessible.
3. Ensure Access to Cash
A few years ago, there was an area-wide power outage. I needed supplies and could buy them because I had cash. Some stores remained open during the blackout but only accepted cash.
After a natural disaster, power outages and limited cell phone service can make electronic payments and ATM access difficult. It is wise to keep a small amount of cash, typically $200-400 in small bills, in a secure location at home. This cash reserve can be invaluable when you cannot access an ATM or when technology fails.
4. Maintain Access to Credit
While it is prudent to rely on an emergency fund, having access to credit can provide an additional safety net. In times of need, credit cards or lines of credit can help cover essential expenses or bridge the gap until your finances stabilize. In cases where you can’t access cash from an ATM, your debit card stops working, or it’s taking a few days to transfer money from your online savings account into your checking, a credit card can be very helpful.
Some experts may disagree with my stance on credit. But credit is a tool and useful in times of need. Credit can help you stock essentials or deal with the aftermath. Ideally, you’ll have an emergency fund or money in your checking account, but that’s not the reality for many. Access to credit can help you when your paycheck doesn’t hit your account on time or when the disaster happens before payday.
Consider having a credit card or a line of credit as your emergency credit lifeline.
5. Create a List of Financial Accounts and Contacts
There’s a high probability that you have financial relationships with multiple companies. How do you keep track of them? And what happens if you’re hurt or impaired after a disaster? Can a trusted person help you sort through your accounts?
Compile a comprehensive list of all your financial accounts and the relevant contact information. This list will simplify your life after a disaster, allowing you to quickly contact institutions, file insurance claims, or cash out investments if necessary. Store this list in a safe place where it can be easily accessed.
6. Protect Important Documents
Where are all your important documents? Are they in one centralized location? Secure your important documents in a centralized location that is fire and flood-resistant. Consider investing in an in-home safe for items like passports, birth certificates, insurance policies, warranties, deeds, and financial account information. Additionally, open a safe deposit box at a local financial institution to store the originals of these documents and keep copies at home.
7. Enroll and Access Accounts Online and Mobile
Enroll in online and mobile banking services to access your financial accounts conveniently. During and after natural disasters, customer support may be overwhelmed, making it difficult to reach a representative. With online access, you can perform account maintenance, transfers, payments, and requests without relying on physical bank locations or customer service calls.
8. Automate Your Finances
Automating your finances simplifies your life, especially during emergencies. It helps you focus on the immediate need instead of financial tasks. Arrange for direct deposit of your paycheck to ensure immediate availability of funds. Automate bill payments to save time and energy, ensuring that essential bills are paid despite challenges.
9. Add Beneficiaries
You may not want to think about your demise, but a natural disaster or health pandemic can increase that probability. Being prepared will help your loved ones navigate a financial system more easily. And accounts with beneficiaries skip probate.
Review your financial accounts and add beneficiaries wherever possible. Adding beneficiaries simplifies the distribution of your assets in the event of your death. Ensure you designate beneficiaries for checking and savings accounts, certificates, insurance plans, deeds, brokerage accounts, retirement accounts like IRAs, and any employer benefits such as the 401(k).
10. Draft Legal Documents
Consider drafting legal documents that will facilitate decision-making in the event of incapacity or emergencies. Power of Attorney documents can authorize a trusted person to handle your finances when you cannot do so yourself. A Power of Attorney document can be instrumental in ensuring that your financial affairs are managed according to your wishes.
Additionally, a Healthcare Directive, which includes a living will and a medical power of attorney, can guide your loved ones and healthcare providers in making medical decisions on your behalf if you cannot communicate.
Another critical aspect of financial preparedness is estate planning. Prepare a will to outline your wishes regarding the distribution of your property after your passing and appoint a legal representative to carry out your instructions. Consider establishing a revocable living trust, which not only facilitates the distribution of assets upon death but also prepares your estate in the event of mental incapacity.
Insurance coverage is also paramount in financial preparedness. Review your homeowner’s insurance, auto insurance, life insurance, and any other relevant policies to understand the extent of coverage they provide. Most misremember their insurance coverage. You might think your belongings are insured, only to discover losses due to a natural disaster; your stuff is not covered under your policy. Take note of any gaps and consider supplemental insurance to ensure comprehensive protection.
In summary, being financially prepared for natural disasters and pandemics is essential for long-term well-being and peace of mind. By completing a personal financial analysis, establishing an emergency savings strategy, ensuring access to cash and credit, creating a list of financial accounts and contacts, safeguarding important documents, enrolling in online and mobile banking, automating your finances, adding beneficiaries, drafting legal documents, and reviewing insurance coverage, you can significantly reduce the financial impact of such events.
Remember, preparation is key. It is crucial to take these steps while the sun shines and the situation is stable rather than waiting until a disaster or pandemic is looming. By being proactive and taking control of your financial preparedness, you can navigate challenging times with greater resilience and confidence.