How to Prepare Financially for a Natural Disaster

Budgeting, Personal Finance
A husband and wife are sitting in their home looking over their finances and are working on their retirement plan.

Mother Nature doesn’t care whether you’re prepared. The ground will shake. Homes will flood. Fires will start. And life will be disrupted.

A savings account for emergencies helps, but not when the disaster beats you to the bank. Bank tellers may be forced to evacuate and ATMs may go down, so your emergency plan should include having some cash on hand. Beyond savings and cash, your foolproof plan also should include keeping personal records, financial records and other documents at hand.

» MORE: NerdWallet’s best savings accounts

Make an emergency fund your priority

Your emergency plan must include your emergency fund. If you don’t have one already, you can open a savings account and contribute $25 every month by setting up automatic payments. Ideally you’d have three to six months’ worth of living expenses saved, but if that seems like too much, you can start small.

A savings account with $500 — depending on the size of your family — can help pay for a hotel, transportation or food if you have to evacuate.

You’ll also need to have some cash to cover you when ATMs are out of service or banks are closed. Store it with important documents in a fireproof and waterproof box.

The amount of cash depends on the specific needs of your family. For instance, if your family and friends are a plane ride away, they wouldn’t be able to host you immediately after a natural disaster. You’d need to have enough cash for hotel expenses and eating out.

“If you have to evacuate right now, do you have the funding in your account to move you and your family?” asks Jason Yancey of HOPE Coalition America, an organization that works with the Federal Emergency Management Agency. The nonprofit group offers free financial counseling services to people recovering from a disaster.

» MORE: Why you’ll always need cash

Document, document, document

In addition to cash, your fireproof and waterproof box should include the documents you may need to pick up the pieces after a disaster.

Many people may not have access to the papers they need to receive assistance from FEMA, agency spokesperson Alexa Lopez said. FEMA helps people prepare for disasters and offers grants to those affected by them.

You’ll need documents and phone numbers for your financial institutions, creditors, health insurance and property insurance. With these, you can contact creditors about late payments or file insurance claims.

KEEP A DISASTER-PROOF BOX IN YOUR HOME

You’ll want to organize personal, legal, health and financial records in your disaster-proof box. Store the box in a safe place that can be accessed quickly in an emergency.

  • Take inventory of your belongings. Include photos or videos of the exterior and interior of your home, rooms and personal items. Note the make, model and year of your belongings so that you’re not shortchanged when you file a homeowners’ or renters’ insurance claim. The Know Your Stuff app by the Insurance Information Institute, an insurance trade organization, can help you get organized.
  • Gather your personal documents. The box should contain driver’s license copies, passports, immigration documents, Social Security cards, birth certificates, health records, pet ID tags, legal records and other information for every family member. FEMA’s Emergency Financial First Aid Kit provides a detailed checklist of every document you might need.
  • Organize your financial documents. FEMA also recommends that your kit be equipped with all account information when disaster strikes. Organize insurance records, bank account records, bank routing numbers, income tax information, pay stubs, employer benefits records, wills, trusts, powers of attorney, investment records, car registrations, titles, deeds and other financial documents in your box.

You may not be able to get into your home after a disaster, so you need a Plan B. Make copies of all information stored in your disaster-proof box and keep them in a safe deposit box or at the home of a trusted relative. You can also make electronic copies and store them in a password-protected format online or on a thumb drive.

When Hurricane Matthew came knocking, Samantha Cox was fortunate her home in Franklinville, N.C., wasn’t damaged, but she was organized before it struck.

“Almost all of our records are online now,” she says. “Birth certificates, personal records, licenses and car titles are kept in a lockbox that is fireproof and waterproof.”

PREPAREDNESS CAN PAY OFF

When the disaster has passed, you’ll have to file claims through your insurance company if your home is damaged. The process will be much easier because you’ll have a box organized with phone numbers, account numbers, photos, videos and anything else you may need.

Lack of the proper insurance or any insurance is a problem for many during a natural disaster, Yancey said. For example, most homeowners’ policies don’t cover flood damage. FEMA’s National Flood Insurance Program aims to offer affordable coverage, but it has to be purchased before a disaster.

FEMA can offer up to $33,000 in federal aid for a disaster declared by the president. The amount granted depends on the damage and situation of a household.

“We can’t make people whole in the end,” Lopez says. “Every situation is different. That is the maximum amount that FEMA can offer, but the average is just a couple thousand dollars.”

Get started now

Some disasters such as hurricanes come with a warning, while others such as earthquakes do not. Don’t try to cram in these preparations after a disaster warning is issued. As you’re scrambling, you may forget something important. Even if you don’t have a huge emergency fund, having some cash on hand and your documents organized will help keep you steady when everything else falls apart.

Melissa Lambarena is a staff writer at NerdWallet, a personal finance website. Email: mlambarena@nerdwallet.com. Twitter: @LissaLambarena.