How to prepare your finances for a natural disaster

Life Lessons

How to prepare your finances for a natural disaster

Just about every geographic area is prone to natural disasters — hurricanes, winter storms, wildfires — that can wreak havoc on your life. But if you’re prepared for these catastrophes, they don’t have to devastate your finances.

If you plan now, you’ll be in the best position possible to protect your family, property and financial life from any type of emergency. Use these five tips to stay prepared and safe:

1. Maintain an emergency fund.
Emergency funds are aptly named because their purpose is to save you during a crisis. If you’re forced to evacuate or can’t work during a disaster and its recovery, you could be without a paycheck for a while.

Make a goal to accumulate at least three to six months’ worth of your living expenses. If that sounds enormous, just get started by making small deposits on a regular basis, such as every month or paycheck. Having a small cash cushion to fall back on is better than nothing.

Keep your emergency funds in an FDIC-insured savings account so they’re safe and easy to access in a pinch. As your balance builds, don’t be tempted to tap it for anything other than a real crisis.

2. Keep cash at home.
And speaking of building a cash stash, it could be difficult to withdraw from the bank during a natural disaster, even if you live next door to an ATM. Power outages, flooding or high winds could get between you and your money.

Determine a reasonable amount of cash to keep in a safe place at home — such as a fireproof safe or a locked filing cabinet — to pay for an evacuation or necessities during an emergency.

3. Have a home inventory.
Most people would struggle to list every item they own that was destroyed by a tornado or fire — especially after the crush of becoming a disaster victim. Instead, make the insurance claim process easier by creating a room-by-room home inventory now.

Not only will a detailed inventory help you get a potential homeowner’s or renter’s insurance claim settled faster, you’ll know how much coverage you need for personal belongings in the first place.

The more detailed your inventory, the better. Start by listing the most expensive items in each room, such as jewelry, electronics, furniture and appliances. Gather up any receipts or get appraisals to help you estimate their value.

There’s no need to list every fork or pair of underwear that you own — simply make a count by category. For instance, 10 pairs of shoes, 5 coats and 2 place settings of china. If you own a lot of stuff, make a goal to complete one room or area of your home each week until you’re done.

Supplement your inventory by taking video of the contents of every room, cabinet, closet, storage area and jewelry box. Store your video and inventory document in the cloud using a free site such as Google Docs or Dropbox.

4. Know your insurance coverage.
Basic homeowner’s insurance covers your home and belongings, up to certain limits, after a natural disaster. If you rent, you should have a renter’s policy because your landlord isn’t required to cover your possessions.

Home and renter’s insurance includes liability coverage if you accidentally injure someone or a visitor gets injured while they’re on your property. An often-overlooked coverage you receive is “additional living expenses,” which pays hotel and meal costs if you can’t stay in your home due to a covered disaster.

But no home or renter’s policy protects you from every possible disaster scenario. For instance, expensive items — such as jewelry, watches, firearms and computers — come with coverage caps. You can add a rider for additional coverage that doesn’t cost much.

There are certain types of disasters, such as floods and earthquakes, that are never covered by basic home policies. Flood insurance is a separate policy you can purchase for your home or personal belongings, up to certain limits. Earthquake coverage can be added to a home or renter’s policy as a rider.

Have an annual review with your insurer about the types and amounts of insurance you need. Evaluate your policies and fill any gaps as your income, net worth and lifestyle changes.

5. Use online banking.
Even in the wake of a natural disaster, your creditors may not be sympathetic if you don’t pay bills on time. The easiest way to stay current, avoid late fees and sidestep dings to your credit is to use online banking through a smartphone or internet connection once you have access.

Some disasters come with a warning, but others don’t. Instead of scrambling when an emergency is bearing down, use these tips to get organized now so your finances hold up when everything else falls apart.

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