How to Prepare for a Natural Disaster
When people say they're saving for a rainy day, they usually mean that they're preparing for an unexpected expense or loss of income. But how many of us have natural disasters in mind when making a savings plan? And how much would you need if a flood, wildfire, tornado, or another disaster were to strike? It's vital to know how to prepare for a natural disaster — including financially.
Emergency Need Is on the Rise
Having a literal rainy day fund is increasingly important as we witness a global uptick in the number and intensity of weather-related disasters. Over the last 40 years, natural disasters have led to over $1.5 trillion dollars in damages in the U.S — $306 billion alone in 2017.
According to the Insurance Information Institute, standard homeowners and renters insurance cover some natural disasters, with the usual exceptions being floods, earthquakes, and damage caused by lack of maintenance or sewer backups. However, even if your insurance covers the damage, it probably won't provide immediate access to funds.
Natural Disaster Expenses
Think about how a natural disaster might affect you and your family. If a flood, storm, or fire makes your home uninhabitable, you'll have to find a temporary residence. Even the most economical hotel choice will likely be more expensive than your rent or mortgage. You'll need to have cash readily available to pay for temporary housing and other emergency expenses.
How much money should you save for a natural disaster? The answer depends on your individual needs and disaster risk. It can be helpful to think of natural disaster financial planning as part of your emergency fund planning. Natural disasters share an important element with other emergency life events, such as illness or injury — the chaos often spills into all areas of your life. For example, you may experience an interruption in income.
Experts recommend keeping up to six months' worth of expenses in a reserve savings account, says Kiplinger. Keep in mind that this recommendation is based on loss of income only, and a natural disaster can greatly increase your cost of living. Having six months of living expenses saved up is a good start, but if you live in an area that's prone to natural disasters, think beyond minimum reserves.
Planning Beyond Savings
Every family's emergency fund amount will be different, but ideally, your savings will provide comfort so that you can focus on rebuilding. Your plan should also consider the steps necessary to get back on the right foot; this requires a clear understanding of your insurance coverage. Even though your plan might not cover all damage, you should know what level of protection it does provide.
An emergency plan should also incorporate go-to options for finding a temporary residence until your home is rehabilitated or rebuilt. Your cash reserves should also include sufficient funds for movers, security deposits, and other expenses to help you return to normal life after the unthinkable happens.
Having a financial plan for natural disasters is beneficial because it brings the worst-case scenario to the forefront. While, fortunately, the odds of losing everything to a disaster are low, there are saving options to make it easier to build up your rainy day fund.