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September is National Preparedness Month: Disaster-Proof Your Finances

Introduced by the Federal Emergency Management Agency (FEMA) in 2004, National Preparedness Month is observed each September to raise awareness and highlight the importance of being prepared for natural disasters and emergencies that could strike at any time. And while dangerous weather events have always occurred, government data suggest that they’ve become more commonplace as of recent times. In fact, according to the National Centers for Environment Information (NCEI), the US has sustained 90 weather and climate disasters in the past 5 years alone, which the total cost hovering around $620.6 billion.1

When it comes to preparing for a natural disaster or emergency, we often focus on gathering adequate supplies to sustain ourselves and our families. And while our main focus may initially be on food, water, a battery-powered radio, flashlights, and first aid essentials, it’s important to realize the importance of taking measures to prepare financially, too. From costly home repairs to extended hotel stays, insurance deductibles, and even potential job losses, natural disasters can wreak havoc on your finances. But they don’t have to! With some proactive planning, you can prepare a financial recovery plan that can be easily put into action in the event of a disaster or emergency. Consider these five financial tips to incorporate into your preparedness plan:    

  1. Store important financial documents digitally
    When a disaster strikes, every second counts. And if you need to evacuate your home, you don’t want to spend precious seconds locating important financial and real estate documents. While the American Red Cross recommends having an emergency preparedness kit ready with supplies for a disaster, it’s also smart to have an emergency document kit – and even better if it can be a digital one.

    This kit should include scanned copies of important documents such as homeowners insurance policies, deeds, recorded real estate documents, and financial and investment information. You can also include birth and marriage certificates, wills, tax returns, and stock and bond certificates. While you likely already have these documents handy in a closet or file cabinet, saving them digitally can make them essentially disaster-proof. Whether it be via a thumb drive you could add to your kit or cloud storage environment, the key is to be able to easily retrieve your important financial documents to hasten recovery efforts in the wake of a disaster.
  2. Build up a rainy-day savings fund
    In the aftermath of a natural disaster, you may find yourself faced with immediate out-of-pocket costs including food, temporary lodging, transportation costs, or other daily living expenses. And perhaps the best way to financially prepare for these unexpected expenses is by stockpiling savings in a “rainy day” fund. Also known as an emergency fund, a “rainy day” fund is money set aside to be used only for the things that you don’t necessarily account for in your monthly budget, but may occur eventually. When building your “rainy day” fund, you’ll certainly want to have savings earmarked specifically for natural disasters. After all, being able to easily draw these funds can be a lifesaver in recovering from a natural disaster.

    And while having a “rainy day” fund could be key to weathering the financial impacts of a natural disaster, the reality is few people do. In fact, a recent Bankrate survey found that nearly 1 in 4 Americans don’t have any emergency savings to tap into if a natural disaster were to strike.2 Like all other disaster preparedness efforts, they key to establishing a “rainy day” fund is to be proactive, starting by considering how much you need to save. In order to cover housing payments, insurance premiums, groceries, and any other disaster-related expenses that could arise, many natural disaster finance experts recommend stockpiling anywhere from three to twelve months of core household expenses. 
  3. Stash aside some cash
    You’ve likely heard the saying, “cash is king.” And turns out, this is especially true in emergency and/or disaster situations. In the days following a disaster, there may be widespread electricity outages, which could keep you from withdrawing money from an ATM or bank. As such, it’s a smart idea to load your emergency kit with cash to help pay for necessities like food and potential lodging, should you not be able to return to your home. In addition to your “rainy day” fund, your stash of cash should be enough to cover living expenses for at least three days.
  4. Set up automatic payments for important bills
    In the event of a natural disaster, the last thing you want to worry about is falling behind on your bills. With this in mind, if you have not done so already, consider enrolling in automatic payments for monthly bills such as credit cards, auto leases or loans, and utilities. This ensures that your bills will continue to be paid – on time – even if you lose access to internet or electronic devices. It’s also a good idea to include contact information for your creditors in your aforementioned emergency document kit. Sometimes creditors offer a reprieve on payments in the wake of a natural disaster.
  5. Reassess your insurance coverage
    When it comes to financially recovering from a disaster, insurance policies can help tremendously – provided you have the right coverage. Do you know if you are properly insured? While standard homeowners insurance covers a wide range of extreme weather, it’s important to realize that some types of natural disasters are not covered and require additional coverage. For instance, a standard home insurance policy typically doesn’t cover damage from flooding or earthquakes. Many homeowners do not know this, and as such, are underinsured. As a result, when disaster strikes, they are left having to rely on federal disaster aid or dig deep in their wallets to cover extensive repairs out-of-pocket.

Like all preparation measures, the best time to revisit your insurance policies is well in advance of inclement weather or natural disasters. As you’re making financial preparations, talk to your insurance agent to make sure your policies provide adequate coverage and ask them to identify any potential gaps. You’ll also want to make sure you know who to contact and what documentation you’ll need to provide should you need to file a claim. Remember, insurance coverage is not one-size-fits-all – adequate coverage for property and flood policies can vary based on factors such as your home’s size, features, and geographic location.

Here’s a bonus disaster finance tip: don’t wait. While thinking about natural disaster preparation can be unsettling, creating a plan can manage the recovery process and offer peace of mind – and you can’t put a price tag on that!

Ready to get started? Begin with taking stock of your resources and cash flow – what’s coming in versus what’s going out. And if you find that you could use another source of income or cash flow, tapping into your home equity with a reverse mortgage could be a viable solution.

For many Americans, their home is the biggest asset and source of wealth. And if you’re age 62 or older, you can convert some of this housing wealth into cash – all while still living in your home well into retirement years. While the cash from a reverse mortgage can be used however you wish, some common use cases we see include keeping more cash on hand to pay for everyday expenses, setting aside funds to help pay for expenses in the future, or establishing a line of credit to better prepare for emergencies or occasional expenses – just like a “rainy day” fund.

See why more than 1.3 million Americans have already made a reverse mortgage part of their retirement plan.3 Contact the Longbridge team today.

1 https://www.ncei.noaa.gov/access/billions/
2 https://www.bankrate.com/banking/savings/emergency-savings-report/
3 https://www.nrmlaonline.org/annual-hecm-endorsement-chart

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