A few days before Hurricane Irma made landfall on the U.S. mainland, the powerful storm was forecast to strike the southeast coast of Florida, where my wife and I are raising our young family. While both my wife and I are South Florida natives and therefore familiar with the usual threats of hurricane season, the prospect of a category 5 hurricane heading straight for us was extremely unnerving. Fortunately for us, but unfortunately for others, the storm turned west of us before making its way north. Its glancing blow left our home without power for a few days and knocked down several tree branches in our yard, but otherwise, we were no worse for the wear.
While most people will never face the prospect of a hurricane bearing down on their home, chances are the place you call home is at risk of some sort of natural or man-made disaster. Whether that particular threat is an earthquake, fire, flood, hurricane, or tornado, there's nothing you can do to completely remove that danger from your life (unless you're a member of the fabled 1% and can afford to outfit a luxury bunker with a hydroponic garden and indoor pool).
There are, however, actions the rest of us can take to better financially prepare ourselves for these terrible events. Here are what I believe to be the two most crucial steps that will not only allow you to sleep a little bit better at night but also shield your finances from much of the damage that a natural disaster can cause.
1. Be ready with an emergency savings fund
Having an emergency savings fund is a great first step in preparing for any sort of financial disaster, natural or otherwise. While opinions vary about how much we should put away in a savings fund, most financial experts recommend somewhere between three and 12 months' worth of living expenses.
There are several advantages to having a savings fund like this during a time of natural disaster. First and foremost, it gives us options before and after such an event. As Hurricane Irma approached, a friend who lived in a mandatory evacuation zone shuttered her home and used the opportunity to visit family members in a foreign country she rarely gets to see. Others drove their families hundreds of miles to neighboring states until the danger passed and power was restored to their homes. For many, that turned out to be more than a week spent away from home while eating out and staying at hotels. That can add up quickly!
Sadly, statistics suggest that many who fled before the storm's path did not have money saved in a rainy-day fund. Talk about a bad time to rack up credit card debt.
Another great advantage of having a well-funded savings account during times like this is that it can cover the cost of repairing damage that isn't major enough to warrant an insurance claim or that falls into the deductible range of your insurance policy.
2. Be insured
My family and I moved this summer into an area that is not a flood zone, so we made the unfortunate decision not to get flood insurance for our new home. As the harrowing footage of Hurricane Harvey's aftermath in Houston played on every TV channel, and as we learned more than we cared to know about storm surge, our decision cost my wife and me a few sleepless nights. Our new home was only half a mile outside a mandatory evacuation zone.
In the days between Harvey and Irma, we did order flood insurance, but there was a month-long waiting period before the coverage kicked in. As I write, we're a week away from being out of that month's window, and I'll be able to sleep much better once the policy is effective. It's hard to believe I put my entire family's financial future in jeopardy over a few hundred dollars in an annual insurance bill.
After Hurricane Harvey, the director of the Consumer Federation of America estimated that nearly 80% of victims did not have flood insurance, because they were not required to and did not believe they were at risk. Maybe you aren't at risk of a flood, but you should consider other insurance riders that are more applicable, like earthquake insurance. Either way, it wouldn't hurt to review your home and auto insurance policies and carefully consider what they covers and don't cover.
While it would be great to live in a world where we didn't have to worry about horrific disasters that leave destruction in their wake, the best we can do is mitigate the risks and prepare for the worst. By maintaining an emergency savings fund, we give ourselves the gift of flexibility and options during life's unexpected trials. By insuring ourselves against a disaster, we're refusing to let that disaster derail our financial future and well-being.