Disaster finance: 4 tips for financially preparing for natural disasters

Tornadoes. Floods. Hurricanes. Earthquakes. Fire. No matter where you live, an emergency can happen. Here's how to prepare for a natural disaster.

Wildfires were ripping through Northern California. Eiman Jahangir woke up at 2 a.m. to someone pounding on his door. The voice on the other side was urging him to evacuate immediately. “I grabbed my wallet and clothes for our kid, and that was about it,” says Jahangir, a university professor and former personal finance blogger. His home was destroyed. He and his family lost everything that was left inside.

“I was by no means prepared,” Jahangir says. He’s not alone. A Bankrate survey found that more than 1 in 5 U.S. adults don’t have any emergency savings to tap into if a natural disaster were to strike. More than one-half of respondents couldn’t cover three months of expenses in the wake of an emergency.

Thankfully, Jahangir and his family eventually financially recovered from the wildfire.

Financially preparing for natural disasters has never been more important because environmental catastrophes are, sadly, increasingly common. 2022 marked the seventh consecutive year in which the U.S. sustained at least 10 separate billion-dollar disasters. In 2021, there were 20 billion-dollar disasters, according to the same research.

Costly home repairs, extended hotel stays, insurance deductibles, even job losses: Natural disasters can wreak havoc on your finances, creating debt and credit issues and even leading to bankruptcy.

A married couple sitting at their kitchen table, discussing their emergency finance plan as they look at a lap computer screen.

So, how do you financially prepare for a natural disaster? The best way to be ready for an emergency is to implement some disaster finance tips in calmer times. That way, if disaster strikes, you’ll be able to deploy your recovery plan. Here are four ways you can prepare your finances for a natural disaster:

1. Build an emergency fund—and have a cash cushion

When preparing for natural disasters, setting aside money in the case of an emergency is one of the smartest steps you can take. But if you don’t currently have a well-stocked emergency fund, don’t worry—you can get started today. Ryan Frailich, CFP®, owner and founder of a New Orleans-based investment advisory firm, says that you can start saving a portion of your income each month to build your emergency fund.

“If you’re socking away money every month, you’ll be prepared for that rough patch,” Frailich says. “And while it may be unpleasant, it won’t be a huge financial stressor or lead to credit card debt.”

Graphic of a hand holding an umbrella, sheltering dollar signs.

If you’re ready to start an emergency fund from scratch, you’ll want to consider how much you need to save. Many natural disaster finance experts recommend you save anywhere from about three to 12 months of core household expenses, so that you can cover your housing payments, insurance premiums, and groceries, plus any disaster-related expenses that might arise.

In addition to saving money for your core expenses, you also might want to consider saving money to purchase supplies for your emergency kit. (For more on emergency kits, see tip 3.) If you’re hunkered down at home, at the very least you might need water, flashlights, and batteries, Frailich says, adding that these and other emergency household supplies can range anywhere from $75 to $300.

While you’re getting your disaster finances in order, you might figure out whether you want to keep a small stockpile of cash at home in a safe but accessible place. Frailich keeps a bag set aside with a few hundred dollars in case there’s a power outage and he can’t get money electronically.

A man, reclining in his desk chair, reads through important financial and insurance documents.

Saving up for potential evacuation expenses, such as lodging, meals, and transportation, is an additional way of financially preparing for natural disasters. Frailich recalls having to leave his home due to an approaching hurricane. Even though the storm passed without damaging his property, he still had to cover the costs of a hotel room, gas, and food while on the road. “It turned out to be nothing, but I still spent $500,” Frailich says.

As you’re prepping your finances for a potential disaster, you’ll also want to consider where to keep your emergency fund. Keeping it in a separate account can reduce the temptation to draw from it for nonemergency expenses. A high-yield online savings account, for instance, can be an ideal place to build up an emergency fund because it allows your money to grow and earn interest while you’re not using it.

“1 in 5 U.S. adults don’t have any emergency savings to tap into if a natural disaster were to strike.”

Bankrate survey

2. Make sure your insurance is up to date

Do you know whether you’re properly insured? As you’re financially preparing for natural disasters, check with your insurance providers to make sure your property, life, auto, health, and flood policies provide adequate coverage. Note that the definition of “adequate” coverage for property and flood policies can vary greatly based on several factors, including your home’s size, features, and geographic location—and whether you live in a flood-prone area.

It’s a good idea to revisit your homeowners and auto insurance policies at least once a year during a financial checkup and update those policies, if necessary, Frailich says. Factor in any life changes, such as marriage, divorce, a new vehicle, or a new home, as well as any home remodeling projects you’ve completed.

While you’re at it, you might be able to find ways to save money and even funnel that savings toward your emergency fund. For example, investigate bundling your home and auto policies to save money on your premium. As you’re considering how to prepare for a natural disaster, you might also check to see if your area’s flood risk zone has changed by checking out the flood maps on the Federal Emergency Management Agency (FEMA) site.

Another disaster finance tip: “Make sure that whatever your deductibles are, you’d be able to repay them,” Frailich says. A lower deductible—that’s the amount you must pay toward a loss—typically means you’ll pay higher homeowners insurance premiums. Frailich adds that it’s best to keep the equivalent of your deductibles in a savings account. You may also choose to keep this additional amount in your emergency savings account.

Taking some time to take pictures of your car and each room in your home is another way of preparing for natural disasters. This way, you’ll have a point of reference in case you experience property loss or damage and need insurance to cover bigger-ticket costs like the repair or replacement of appliances. According to Frailich, it’s ideal to take new photos once a year, or at least whenever you complete a renovation or make a large purchase. Backing up your images—as well as your computer files and mobile phones for that matter—onto the cloud will ensure your critical documents go where you go, even if your hardware gets damaged.

A woman on the phone, standing at her desk, taking notes with a pen and paper.

3. Prepare emergency kits—for you and your disaster finances

When Jahangir had to quickly evacuate his home, he learned firsthand the importance of spending the time and money to put together a “get out of Dodge” bag. FEMA’s Ready website offers helpful emergency kit lists, which include items like several days’ supply of food and water, a flashlight, a whistle, extra batteries, medicines, pet food and dozens of other supplies.

Jahangir also recommends adding a checkbook, your at-home cash stockpile, and credit cards to this kit.

While you’re putting together items and resources that will be helpful during a natural disaster, you should also think about what happens post-disaster. In the event of an emergency of any scale, you’ll want your important personal and financial paperwork accessible in one place to help you move as efficiently as possible through the recovery process. FEMA calls this collection of important papers an Emergency Financial First Aid Kit (EFFAK).

The kit would consist of:

  • Household identification documents, including information about each member of your household, such as original birth certificates, Social Security cards, passports, and proof of pet ownership.
  • Financial and legal documentation, such as your mortgage or real estate deeds of trust, lease agreement, utility bills, account information for each of your credit cards, vehicle registration, and retirement account statements.
  • Medical information, including your insurance card, physicians’ names and contact details, immunization records, and prescriptions.
  • Service provider contact information for your mortgage representative, insurance agent, attorney, financial advisor, and household service providers.

To keep your EFFAK safe, you may consider storing this information in a fireproof and waterproof box, a safe, or a safe deposit box in a bank.

4. Be ready to deploy your recovery options

When you’re preparing for natural disasters, remember that doing as much as possible in advance will save you a lot of trouble both during and after an emergency. The days and weeks following a disaster can be chaotic, but the more organized you are during this time, the better, Frailich says. To that end, make sure to regularly review your readiness by revisiting the tips above. Also, know exactly where your EFFAK is located, so you’ll be able to deploy your recovery plans as effectively and efficiently as possible.

One important natural disaster finance tip is to call your insurer to discuss your coverage and review the reimbursements you’re entitled to for your personal property. “Take full advantage of the insurance you pay for,” Frailich says.

A woman, sitting at a table, talks on the phone with her insurance representative.

Remember that disaster claims may take longer to process than other kinds of claims, and the amount of time can vary based on how quickly you contact and respond to your insurer, says Frailich. The same goes for any federal, state, or local disaster assistance. In the event of a natural disaster, remember to keep records of phone conversations—jot down the names of the people you speak to, as well as dates and times—and save all email communications when filing for claims in case you need to reference them later.

When you’re considering how to prepare for a natural disaster, keep in mind that fraud is an unfortunate side effect of disasters. As you manage your post-disaster finances, stay vigilant against credit card scams, such as callers posing as contractors, insurers, or disaster-assistance agencies who try to talk you into giving them your credit card information. Remember to check your credit report regularly for any fraudulent activity and understand how to protect your bank account from fraud.

“If you’re socking away money every month, you’ll be prepared for that rough patch—and while it may be unpleasant, it won’t be a huge financial stressor or lead to credit card debt.”

Ryan Frailich, CFP®, owner and founder of a New Orleans-based investment advisory firm

Find financial calm before the storm

Thinking about how to prepare for a natural disaster can be unsettling, but creating a plan that works can offer peace of mind before a disaster happens—and it can help you manage the recovery process in the event of an emergency. As you’re preparing for natural disasters, it’s important to understand the basics of your cash flow—what’s coming in versus what’s going out.

“Know your monthly expenses inside and out,” Frailich says. He suggests also trying to live below your means for a time, if necessary, so you’re able to save enough to get through a rough patch down the road.

The last disaster finance tip is not to wait. Start preparing for natural disasters today by taking stock of your resources—savings, insurance policies, and emergency supplies—before an emergency occurs. This way, you’ll be more likely to preserve your assets, ease your stress, and be better positioned to manage a difficult situation.

After planning for your rainy day, keep your everyday finances in check with this quarterly financial checklist.

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