Your Financial (Disaster) Toolkit
Climate change and extreme weather seem to be taking over the news headlines for the past few years. Hurricanes, tornadoes, drought, wildfires, earthquakes, and floods are becoming more common and in areas once thought to be “safe” from natural disasters. These events can cause massive damage to not only your home, but your finances, your sense of security and identity. And while it may be difficult to avoid or be 100% prepared for a disaster, there are some steps you can take to protect your family and avoid some of the stress in a time of crisis.
Build Up The Emergency Account
I cannot underestimate the importance of having an account dedicated to covering emergencies. Aim for 3-6 months of expenses (I tend to lean towards the higher end) in a liquid, high-yield savings account. You may want to keep more than 6 months, but I would not recommend less than 3. In a pinch, also think about other sources of cash you could tap. This may be physical cash, a taxable brokerage, or a HELOC (home equity line of credit). Retirement accounts should be last in the priority list.
Keeping cash on hand might be useful if banking systems are down. The amount you keep is up to you, but enough to gas up the car, feed your family, and stay a few nights at a hotel should be sufficient. Also, purchasing an emergency kit that includes food, water, first aid, blankets, and other survival items is a good investment.
Keep Adequate Insurance
This is a big one. While insurance is a necessary evil, the word “necessary” makes it something you need and its purpose is to cover you in a disaster or unexpected event. Having the appropriate renters or homeowners policy in place will help you recoup losses.
Renters insurance includes personal property coverage and ideally, loss of use, which helps pay some of the costs of alternate living arrangements if you have to vacate. Your homeowners policy has coverage for how much it will cost to rebuild in the event of a total loss. It’s important to become familiar with terms such as actual cash value vs. replacement cost. A condominium policy has its own unique features since you are typically not responsible for the exterior; also referred to as “walls in”.
Keep in mind, that while fire damage is included in your policy, a flood or earthquake is not and separate coverage is required. In any case, take photos or even better, video your belongings. It will help your case if you have a claim.
Ensure you do your homework before deciding on coverage. Don’t skimp because if you need to use it, you will be happy you have it.
Know Where Important Documents Are Located
Passports, social security cards, marriage certificates, birth certificates, military documents, auto and home titles, and other original documents should be kept in an easily accessible, yet secure place in your home, such as a fireproof safe. You could also store them in a safe deposit box at your local bank for a fee. Also consider scanning and storing them on an external drive as a backup. Longer documents, such as tax returns and estate planning documents may already be stored on your computer, but I would still recommend keeping a backup elsewhere.
In addition, make a list of important phone numbers, prescriptions, and account numbers. The key is to know where everything is located, including informing trusted household members.
This is not an exhaustive list of items or financial documents you may need in case of a disaster. You may have other irreplaceable possessions that you will want to preserve and grab in a hurry, such as photos or other memorabilia. The key is to take inventory, know where things are located, and inform others in your household. Reviewing everything once per year is a good rule of thumb. Each year, accounts can be opened/closed, taxes are (hopefully!) completed, or estate planning documents may need updated when big life events occur.
As we live in what seems like a more unpredictable world, it’s important to have a financial (disaster) toolkit that includes having access to living expenses, proper insurance coverage, and all of your important documents. If you find yourself in unfortunate circumstances, you will be happy you took the steps to keep your family safe.