Now that the hurricane season is knocking at the door, it is time to start preparing. Anything can happen to anyone at any minute, especially if they are in the Atlantic tropical storm belt. As a result, one of the first things that you can do is to prepare your finances for a natural disaster. The most effective way to do this is to prepare a financial first-aid kit.
If you are wondering how to create a kit, you have to consider several factors such as your financial preparedness, the types of disasters that you want to prepare for, and the steps that are required to become financially ready for any disaster.
What Is Financial Preparedness?
Debit and credit cards are less likely to work properly during and after a disaster. Over the years, in the aftermath of several storms, there have been many examples of businesses resorting to cash only transactions. In many cases it was triggered by power outages and damaged hardware infrastructure, which resulted in ATMs and point of sale systems being out of service. However, you can prepare for these types of situations by working on your financial preparedness.
To prepare for a situation of cash only transactions, there are a few things that you can do. On the non-financial side, you should stock up on non-perishable food, prepare a first-aid kit and a hurricane supplies kit. This is so that you will have enough supplies on hand to survive in the days and weeks following the disaster event.
On the financial side, you should keep cash on hand for emergency purposes. The premise behind keeping cash rests on the fact that electronic systems may be out of service. And, seeing that businesses resort to cash-only transactions, you will have money to purchase items that you will need. Remember, in order to adequately prepare for storm risks, you have to keep the possible effects in mind, so that you can handle what may come.
Types of Natural Disasters You Should Prepare For
Based on past occurrences, natural disasters always cause more severe damage than expected. Unfortunately, no one knows exactly what disaster is coming next or how devastating it will be. However, one should be aware of what is possible at any time, and anywhere in the world.
So, here are some types of disasters that you should be prepared for:
- Earthquakes
- Floods
- Hurricane and Storms
- Fires
- Tornados
- Adverse weather conditions (especially during winter)
5 Steps to Prepare Your Finances for a Natural Disaster
Planning a proper financial disaster action plan is crucial for you and your family. Natural disasters are unpredictable, and you do not know how much damage the next hurricane will cause. But, if you work on managing your finances, you may be able to reduce their effects and recover faster. Here is how you should plan your finances for the next natural disaster:
Step 1: Come up with an effective plan
The first thing you should do is not panic. Be calm and pull yourself together. Figure out a proper plan. You cannot engage in effective planning when overwhelmed with emotions. Here is what you need to do:
Correlate with your surroundings in mind, and:
- Identify the emergencies
- Pick out the potential hazards
- Come up with a shelter plan
Again, come up with an evacuation plan as you do not know when things can worsen and how access into and out of your area will change.
- Come up with an emergency contacts list
- Assign specific responsibilities
- Plan evacuation routes and fix a meetup place
Step 2: Ready Your Finances
We get to see many unexpected events in life, and they often carry forward huge expenses. This applies to natural disasters as well. So, why not keep a certain amount of money and use it as a disaster emergency fund?
What is a Disaster Emergency Fund?
A disaster emergency fund is a sum of money that kept in an easily accessible (but secret) location in your home, a bank or credit union savings account or in a money market account. The basic idea of this type of emergency fund is to meet the financial expenses of unexpected events. This money should be readily available to help you in the hours of crisis. One of the benefits of a disaster emergency fund is that you do not have to apply for a loan or wait for funding when the time comes.
When creating your disaster emergency fund, aim to target an account balance that can cover at least six to nine months of expenses.
Step 3: Go through your insurance policies
If the insurance policies are enough to back you up, the out-of-pocket costs will not be that much. Adequate insurance can help you cover any losses incurred as a result of a tropical storm or any other unpredictable disaster event.
One of the benefits of insurance is that it covers many of the things that you do not expect. Additionally, insurance will provide a safety net, which is important when preparing for disaster risks. To ensure that you have the right amount of insurance cover, you should:
- Review your valid or current policies, such as home insurance, renter’s insurance, life insurance, automobile insurance, or disability insurance.
- Record your home inventory (including serial numbers, where possible) and take pictures of everything. This process may take a while because you have to be thorough. Walk through the entire home and cover every corner of the house. Document appliances, furniture, electronics etc. Also walk around outside your home and document exterior assets such as decks, fencing, outdoor sheds and window and door shutters.
If you are not sure about your current coverage, get in touch with your agent, and they will tell you the limitations of your policy and whether or not you need additional coverage. Additionally, take this opportunity to review your beneficiaries.
Step 4: Safeguard important documents
If you are faced with a natural disaster, your important documents should be secure. Important documents include identification cards, property deeds, bank account details and card information, power of attorney documents, or wills.
The caveat is that if you cannot find necessary documents in the hour of need, you may have a hard time dealing with the disaster. And it may be difficult to recover from the damage it may cause.
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Step 5: Sign up for an Estate Plan
Natural disasters often lead to devastating outcomes. A pandemic, earthquake, storm, flood, or fire can lead to a severe loss of life and property. And monetary disarray may burden the survivors with additional stress.
You will need certain documents such as living trusts, powers of attorney, living wills, beneficiary documents, proxies for health care, and letters of intent. If anything unfortunate happens, these documents will help your family to manage and disburse your assets as you wish.
How to Protect Your Financial Documents
There are countless tales of people who have lost their personal documents in disasters. If you are wondering how to safeguard your financial documents, here are a few suggestions:
Organise your documents into categories:
- Automobile papers and manuals
- Rental papers, or deeds, mortgage papers
- Statements and proper documents of your credit cards
- Monthly statements
- EOB and medical bills
- Insurance policies and investment records
- Loans – student loans, personal loans or mortgages
- Estate plan papers like trusts, powers of attorney, wills, etc.
- Utilities and taxation records
Once you have classified the documents, make a folder for each category, and insert the documents. For easy access which will allow you to find documents quickly, label the folders.
Physical Storage
Now that you have separate folders ready, it is time to store them in a safe place. A waterproof safe, cabinet or drawer can be appropriate for storing such valuable documents.
Digital Storage
It is very important to keep a backup of your documents as soft copies. You can secure those documents in an encrypted drive or use encryption software to keep documents safe and sound.
Create a Financial First-Aid Kit
To create a financial first-aid kit, you need to safeguard or stock all your important documents such as financial documents, banking and investments accounts, personal identification, and insurance documents. As mentioned previously, you can store these documents in a waterproof safe or create soft copies and store them on an encrypted drive or dependable cloud storage.
When dealing with a natural disaster, there is always a possibility that you could end up in a life-changing financial crisis. It is important to keep a sum of money that you can use during an emergency. Remember, your financial emergency fund should contain enough money that can cover up to six months of your fixed expenses.
For more information on how to prepare your finances for a natural disaster, please visit the following links:
FEMA: Emergency Financial First Aid Kit (EFFAK)
OECD: Financing Preparedness
Ready.gov: Financial Preparedness
San Diego Financial Literacy Center: 5 Ways to Financially Prepare for a Natural Disaster
Discover: Disaster Finance: 4 Tips for Financially Preparing for Natural Disasters
AFERM: The Importance of Financial Disaster Preparedness
Red Cross: Disaster and Financial Planning
FEMA: Financial Preparedness Pays Off in Emergencies
Image: Ryan Parker via Unsplash