Finance in the Face of Disaster

If a natural disaster strikes, are you financially prepared?

The recent onslaught of earthquakes, tsunamis, and tornadoes has provided a glimpse into the devastating effects of disaster. The first concern is always physical safety—but once the initial disaster has passed, reality sets in. Often, houses are destroyed and people lose everything. While we can’t prepare for every eventuality that Mother Nature has to offer, we can prepare our finances so that we can be as ready as possible to cope with the changes that disasters inevitably bring.

Just as it’s easier to stay in shape than it is to get in shape, it’s easier to keep our finances in order than it is to get them in order, especially under trying circumstances. Here are some basic guidelines for financial preparedness:

Stash cash. In the event of a devastating disaster, you may experience a period in which your region has no power. Credit cards will do you no good under such circumstances. Keep some cash in your home emergency kit—just in case. (Incidentally, this kit should also include a three-day supply of water, radio, flashlights, batteries, and a first-aid kit.)

Maintain your emergency fund. Conventional wisdom dictates that we should have about three to six months of expenses saved in a designated emergency fund. Most people view this as a safeguard to be used for a sudden loss of employment; however, it is also important in case of true emergency—such as loss of home. Your emergency fund should remain untouched. If you experience a devastating loss, that new toy you just had to have is not going to help you.

Maintain proper levels of insurance. Many people are drastically underinsured. If your home burned down, do you have enough coverage to replace everything? This is not the place to cut expenses. Stay on top of your insurance coverage. When you experience life changes—such as a new baby or acquiring new property—be sure to adjust your coverage.

Take an inventory. Keep an updated inventory of all valuables. Maintain a list, serial numbers, warranty information, photos, and videos if appropriate. Some people walk through their home with a video camera to document everything inside. Having an inventory is going to save you lots of headaches in the event of a disaster and subsequent insurance claim.

Maintain a safe deposit box. In the event of a disaster, you’re going to need a lot of information and documentation. Keeping this information in a safe deposit box can increase the likelihood that it will survive the disaster. Gather birth certificates, marriage and family records, adoption papers, property deeds, wills, insurance policies, passports Social Security cards, immunization records, bank account information, credit card account information, contracts, and any other important documents. Place all documents in plastic bags to keep out moisture. Consider placing some extra cash in your safe deposit box as well. Store an extra key to your safe deposit box in a separate location from your home.

Have back-up systems in place. A safe deposit box is a back-up system, but face it, you may need a back-up for your back-up. Make extra copies of everything and store them in a distinctly different location, perhaps with a family member. If you have a family member you trust, consider providing them with copies of your account numbers—in the event of a large-scale disaster, you may need their help.

Remotely back-up computer files. Computers can be replaced, but the information stored on them cannot. Use an online, remote back-up system to safeguard your computer files. This will save you the headache and cost of lost documents.

Disasters are out of our control, but preparedness is not. Keep your financial house in order. If disaster strikes, you’ll be able to focus on the health and safety of your family rather than the financial fallout of the disaster.