Prepare for financial disasters

We’ve experienced unprecedented bushfires, followed by a worldwide pandemic; it’s time to be ready for the unexpected.

Here are a few hints from the financial experts for coping with disaster.

1. Have an emergency plan
The pertinent saying here is JFK’s: “The time to repair the roof is when the sun is shining.”

The best way to be ready for disasters is to make realistic budgets the basis of an emergency plan.

Assess your household budget by listing all essential monthly expenses, including rent or mortgage, leisure spending and groceries.

Subtract all extra spending, such as entertainment. What’s left is the amount of money you need to survive.

The federal government’s site suggests the following:

  • make the emergency fund a “separate, high-interest savings account”. This means you’ll be less tempted to dip into it for less important expenses
  • set up an automatic transfer from your wages into your emergency fund
  • if you have a home loan with an offset account, use the offset account as your emergency fund.

2. Insurance
Identify the disasters that can occur in your region and how they could affect you. Use a detailed home insurance calculator to work out the cost of rebuilding your home. Regular home insurance may not be enough. Make sure you’ve examined the fine print of your policy, so you know if you’re covered for flood or bushfire.

Your policy must cover all the costs of rebuilding your house and replacing its contents.

3. Documents
Unfortunately, disasters involve red tape. You may need documentation to access relief, insurance payments and your assets. And you’ll need medical and financial records to begin or start the recovery process. Make copies of all your important documents such as passports, birth certificates and contracts. Keep these in a fireproof safe or in a safe deposit box. Photograph documents and belongings, and save the images on an external hard drive or to the cloud. Thirty minutes spent listing household items can save you a lot of hassle if you’re dealing with insurance claims.

4. Cash
During an emergency, electronic forms of money may be unavailable. Maintain enough cash to pay for food and lodging, for at least three days, if the power is cut. Smaller bills and coins will be handy, if you need to use laundromats or businesses lack change.

Keep this money in a fireproof, waterproof bag. Remember, you could lack access to your bank account, or an income, if the disaster is extreme.

5. Change your lifestyle/reduce debt
If you’re financially extended, you’re more vulnerable in emergencies. Economist John Adams addressed this when tackling ‘How to prepare for ‘economic Armageddon’.

He advised the debt-ridden to embrace a simpler lifestyle, “improving personal cash flow and selling unneeded assets and possessions”. The resulting increase in savings attacks debt.

He suggests prioritising debts that incur higher interest rates and shorter duration periods.

Changes in lifestyle include “cutting back on unnecessary spending, making your home self-sustainable through renewable energy or water tanks, or finding cheaper substitutes to current activities, for example exercising in the local park as opposed to going to a gym”.

We can develop extra income sources by learning new skills to run ‘microbusinesses’.

His further suggestions are surprisingly touchy-feely for an economist.

Build ‘home skills’, such as growing food, repairing cars and brewing alcohol; strengthen personal relationships; get fit.
And embrace spirituality!

Are you prepared for disasters? Do you have an emergency fund? Do you have up-to-date records of all essential documents?

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Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.

Written by Will Brodie


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