Before a Natural Disaster: Secure Your Finances
Whether fire or flood, earthquake or hurricane, powerful forces of nature can lead to financial ruin if you and your home are in its path. While you can't stop a catastrophe from happening, you can take preventative measures to protect your finances.
Be adequately insured
The right insurance policy will enable you to recoup and rebuild with the least amount of personal outlay. If you're a homeowner, you know that a minimum of homeowner's insurance is required – but to be fully protected, you may need to add to it. Consider a guaranteed replacement cost policy, which allows you to rebuild your house at today's prices, and make sure it covers the cost of meeting current building codes. Most homeowner's policies don't cover damages from flood or earthquake; so if this is a concern for you, add the coverage to your policy.
If you rent your home, seriously consider purchasing renter's insurance. Often low-priced, it typically pays for damaged, destroyed or stolen property. For even greater security, spring for a policy that will pay for the cost of a hotel if your home becomes uninhabitable.
Establish an emergency fund
Keep most of the emergency fund in a passbook savings or money market account (where there are no penalties for early withdrawals), but stash some cash in your home or car too. You may not be able to get to your financial institution or an ATM machine for a while.
An emergency fund is vital to every financial plan since it ensures that much-needed money will be readily available in the event of a disaster. Have a set sum automatically deducted from your checking account and deposited into a savings account until three to six months' of essential expenses is built up.
Keep your credit card balances down
Credit cards are not intended to take the place of an emergency fund, but they are important to have since you may need to check into a hotel or rent a car during a crisis. Also, if you must use them as a cash source, you won't want to build a bigger balance than you can reasonably pay off when the dust settles. If you currently have credit card debt, concentrate on repaying what you owe.
Plan for your estate
Have loved ones who depend on you for financial support? Then plan for your estate as well. You may need to draw up a will (to leave property to your heirs) and/or a living trust (to bypass the long and expensive probate process). A power of attorney document is a good idea too, as it will let you appoint a trusted individual to make financial decisions on your behalf if you become unable to do so. Consult with an estate planning lawyer or other financial professional to know what is right for you.
When the skies are clear and the forecast calm, the desire to put off such planning can be very strong. However, nobody knows when and to what degree a catastrophic event will occur – which is why being prepared is so crucial. And once done, you will be confident that even if the earth does shake, your financial foundation will remain firm.
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