Personal Finance

Financial Preparedness for an Emergency

The 2008 recession was a wake up call for many who were not prepared for a black swan event. Little did we know back then that in barely over a decade the entire world will be locked down because of a pandemic.

Most of us were not prepared to deal with the massive economic crisis that has resulted due to the COVID-19 pandemic. This pandemic is another reminder that disaster can hit us when we least expect it. To make things worse, California is now suffering through a series of wild fires and people have had to evacuate their homes in the middle of the night. The following iconic image was taken by AP reporter Noah Berger.

California Wildfires
California Wildfire Meets COVID-19 Pandemic (AP Photo/Noah Berger)

It is best to prepare a financial plan to deal with disasters before they occur rather than after they occur. It is impossible for us to be completely prepared for a future emergency; however, we can take steps to reduce the devastating impact an emergency can have on us.

Create an Emergency document kit

Creating and safeguarding an emergency document kit is essential and will help in managing emergency situations. Make a list of all the things you will need during an emergency and file them in a folder and put them in a safety deposit, an external hard drive, or on a cloud drive that can be easily accessed during an emergency.

Create a “Run Away” Bag

We use a “run away” bag that contains the most important documents that will be hard to replace quickly and some money to tide us over for a few days. The runaway bag can contain  birth certificates, passports, a flash drive of digital backups, etc. In order to be prepared for an emergency, consider making a checklist of all your documents and set a monthly reminder to review and update the documents.

The Federal Emergency Management Agency (FEMA) and Operation Hope have published an Emergency Financial First Aid Kit that you can use to be financially prepared for disasters. You can use the list below from FEMA as a starting point for your checklist and add to it as needed.

Household Identification

  • Vital records (birth, marriage, divorce certificate, adoption, child custody papers)
  • Passport, driver’s license, Social Security card, green card, military service identification, other
  • Pet ownership papers, identification tags

Financial and Legal Documentation

  • Housing: lease or rental agreement, mortgage, home equity line of credit, deed
  • Vehicle: loan documents, VIN, registration, title
  • Other Financial Obligations: utility bills, credit cards, student loans, alimony, child support, elder care, automatic payments such as gym memberships
  • Financial Accounts: checking, savings, debit cards, retirement, investment
  • Insurance Policies: homeowners, renters, auto, life, flood, appraisals, photos, and lists of valuable items
  • Sources of Income: pay stubs, government benefits, alimony, child support
  • Tax Statements: Federal/state income tax returns, property tax, vehicle tax
  • Estate Planning: will, trust, power of attorney

Medical Information

  • Health/dental insurance, Medicare, Medicaid, VA health benefits
  • List of medications, immunizations, allergies, prescriptions, medical equipment, and devices, pharmacy information
  • Living will, medical power of attorney
  • Caregiver agency contract or service agreement
  • Disabilities documentation
  • Contact information for doctors/specialists, dentists, pediatricians, veterinarians

Emergency or Hotline contact information for household

  • Employers/supervisors
  • Schools
  • Houses of worship
  • Social service providers
  • Homeowners Associations
  • Home Repair Services: utilities, plumber, roofer, carpenter, electrician

Valuable and priceless personal items

  • Priceless personal mementos, family photos, and keepsakes
  • Possessions with monetary value, including jewelry, art, and collectibles

Review Insurance Policies

Regularly review your financial paperwork and insurance policies and ensure that they are accurate and up to date.  If you own a home and a car, verify on a regular basis that your household coverage and your auto insurance coverage is sufficient to support you during an emergency. If you are a tenant, ensure that your renters’ insurance is up to date and your lease reflects your current rent. On a regular basis, update and review documents related to your rent and mortgage.

Budget for Home Repairs and Vehicle Maintenance

Even if you have homeowners insurance and other kinds of insurance, it may take some time to file a claim and get the insurance money. Set aside an account for home repairs and vehicle maintenance. Ensure that your vehicles are regularly serviced. Household repairs also cost a lot if the damage is severe. Setting aside money for repairs and maintenance will help cover these costs in emergency situations.

Receive Benefits Electronically

Mail services can be severely disrupted during a disaster. Switching to electronic payments is simple if you depend on Social Security and other regular benefits. This will be a simpler way to safeguard yourself financially and also save you from the risk of stolen checks.

Build an Emergency Fund

Building an emergency fund is an essential step when you plan and prepare for a financial emergency. Besides your home repair and vehicle maintenance, it is imperative that you create an emergency fund to prepare for a rainy day.

Behavioral Changes While Preparing for an Emergency

As much as it is essential to financially prepare for emergencies, there are also some behavioral changes you can make in order to be prepared. Get involved with your community and get to know your neighbors. Maintain a good and healthy relationship with people around you. Ensure that your home is safe by doing regular checks for needed repairs. Assemble supplies with a longer shelf life that will come handy when stores shut down during an emergency. Have a medical first aid kit stocked and ready to use.

Last but not the least, have a sound and composed mind. Keeping your body and mind healthy will reduce multiple medical bills during an emergency. Eat right, exercise regularly, and meditate. Stress and depression are added baggage during an emergency and it can be reduced if you make it a habit to learn to stay calm, which will further help you in dealing with an emergency.

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