Are You Financially Ready to Weather a Storm?

Dear Carrie,

Given what seems like a growing threat from all sorts of natural disasters, how can I prepare financially? I have an emergency fund, but what else can I do to protect myself? And how can I be ready in case I have to pack up and leave in a hurry?

—A Reader

Dear Reader,

While some people might not share your concern, I think it's right on target. A few years ago, the son of a colleague lost his home to a wildfire and he and his family literally had to run for their lives. While that may sound like a rare circumstance, these days more and more people are being affected by extreme weather situations that are threatening their lives and livelihoods.

According to a recent nationwide survey, three-quarters of adults in the U.S. report having experienced events like floods, hurricanes, heatwaves and wildfires in the last five years. And it's taking a financial toll. Of course, being 100 percent prepared for every potential type of catastrophe is impossible, but there are definitely things you can do now to mitigate your stress and harm in a time of crisis. Here's what I suggest.

Having adequate insurance is #1

While insurance won't cover everything, it's the cornerstone of your protection from a property loss. Renter's insurance is relatively inexpensive and will cover your belongings—from clothing and furniture to your TV and computer. If you have to vacate for a covered reason, your policy may also pay for living expenses that exceed what you'd normally pay.

Homeowners policies are complicated, so if you aren’t familiar with the details, take the time to learn what is—and isn’t—covered. For example, does your policy cover ‘actual cash value’ (replacement cost minus a deduction for depreciation) or are you covered for full replacement value? The gold standard is ‘guaranteed replacement cost,’ which gives you an extra layer of protection, especially in the case of rising construction costs.

Also be aware that homeowners policies generally cover damage from a fire, wind or snow, but not floods or earthquakes. Depending on where you live, these separate policies—although expensive—can be money well spent.  

Organize and update your documents

You may have many of your important documents available online, but if not, where are they? And when was the last time you looked at them?

Start by making sure you have information that can help you establish proof of identity and proof of ownership. This should include your driver's license, passport, Social Security, Medicare and health insurance cards, birth and marriage certificates and military papers.

Next, think about how best to access lengthier documents such as real estate titles, proof of insurance, estate plan documents, your most recent tax return, car title and registration (some of this might be available through electronic records with your service providers).

Make lists of important phone numbers, account numbers and passwords, and prescriptions.

Beef up your emergency funds

Establishing an emergency fund, as you've done, is extremely important. But do you have enough? Ideally you should have cash to cover three-to-six months of essential expenses. And of course, you have to be able to get to it quickly, so make sure to keep this money easily accessible in a savings or money market account.

To further protect yourself, think about other sources of cash you might be able to access, such as a taxable brokerage account, HELOC or HSA. If you're in a pinch, you could consider tapping into ROTH IRA contributions or taking a 401(k) loan, but to me these should be absolutely your last resort.

Now pack your financial "go bag"

Whether your go bag is physical or digital, or a bit of both, there are several important documents to gather and steps to take:

• Have certain documents ready to grab and go—You may have hard copies of your records safely tucked away in places like a fireproof and waterproof safe, file cabinet at home or a bank safe deposit box, but a severe disaster could make it impossible to access them for an extended period of time. Have extra copies of documents you can't access electronically tucked away somewhere you can get to in a hurry—especially those identification docs.

• Keep some physical cash on hand—While we take ATMs and credit cards for granted, they may not work in a disaster. There's no set amount to target, but having enough cash in your pocket to cover a few days of food, gas or lodging for you and your family could be a lifesaver. Include a few checks and an extra credit card and ATM card just in case.
• Put contact numbers and policy numbers on your phone—When it comes to insurance coverage, timing can be important. Keep numbers for your insurance providers as well as your policy numbers in your phone so you can call immediately to start the process.
• Take a picture—To verify your possessions, take digital photographs or videos of the rooms in your home and any valuable belongings. This simple act could save you hours of time in the event you had to itemize losses for an insurance claim.

Pack now—and repack as necessary

Once your financial "go bag" is ready, hopefully you'll never have to use it. But just to be on the safe side, take the time to review and update it once a year or anytime your circumstances and needs change.  

You can’t prepare for everything, but that doesn’t mean you shouldn’t take steps to be as prepared as possible. And be sure to keep that emergency bag with physical necessities handy as well!

Have a personal finance question? Email us at askcarrie@schwab.com. Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.