How to (Financially) Survive a Disaster

Last week my apartment was completely destroyed in a fire.

I got the first call around 2:45 p.m. but didn’t answer right away. I had plenty of work to do, and my neighbor could wait — or at least I thought so at the time…

“Call me ASAP! It’s an emergency.” A follow-up text read, “The roofers have set the apartment on fire.”

Within minutes I was out the door, sprinting like a madman towards my car, a million thoughts racing through my head all at once. My apartment was just over a mile away. I couldn’t see any smoke yet, but the multiple news helicopters hovering above were far from reassuring.

By the time I reached the barricade tape, I could already tell it was a total loss. I thought about my passport and missing the destination wedding I was to attend just a few weeks later. I thought about who could have still been inside. I thought about my cat: alone, terrified, burning alive.

I thought about the tens of thousands of dollars it would take to recoup this loss…

As time passed and the adrenaline began to subside, though, small bits of good news began to trickle in. My personal documents had (barely) survived. That myth about cats having nine lives turned out to hold some truth. I also came to realize the incredible support I have from my friends and family.

Truth be told, I was incredibly fortunate to make it through this disaster as well as I did. Most importantly, no one was seriously hurt, but it also helped immensely that I was well equipped to deal with the situation from a financial standpoint.

Unfortunately, many others displaced in disasters aren’t so lucky or so well prepared. Natural disasters displace ~35 million people globally and ~1 million domestically every year, with many people becoming permanently impoverished as a result. Simply put, disasters often leave the middle class near poverty and the poor completely homeless.

While it’s easy to live your life thinking disaster will never strike you personally, the truth is there’s only so much you can control. When it comes down to it, all it takes is one moment for you to lose just about everything, and when that happens, it will hit you in the face like a wall of bricks.

That said, I wanted to take this space to give some advice on how to prepare for and financially survive a disaster. Ultimately, losing your home and/or belongings to flood, fire, etc. is one of the greatest financial risks you will ever face, so I urge anyone reading to at least consider the following tips…

Survival Tip #1: Build a Safety Net

Your first steps to financially surviving a disaster are going to have to be proactive, and the single most important measure you can take before the unthinkable happens is to establish an emergency fund.

When disaster strikes, you will need immediate access to cash (credit should be a last resort) — a place to stay, clothes to wear, food to eat, hospital bills: there are many sudden expenses you will be forced to take on at the drop of a dime.

While everyone’s savings goals will depend on their income and personal spending habits, a general rule of thumb is to save enough to cover four to seven months worth of minimal living expenses. Of course, that’s often easier said than done, and the reality is that nearly half of Americans don’t have enough cash on hand to cover even a small emergency.

According to the Federal Reserve Board, 47% of Americans would have trouble coming up with just $400 in a jam — they would either have to sell something, borrow money, or simply wouldn’t be able to pay at all.

When the rubber meets the road, though, you have to start somewhere. If you have no emergency fund at all, you can begin with a small goal of $1,000 and then work your way up from there. You might have to cut expenses in the process, but the security that comes with an emergency fund is well worth the sacrifice.

As for where to store your emergency fund, traditional advice will tell you to store your money in a cash savings account, which is probably your safest way to go. More aggressive advisors will say it’s OK to stick the money in a moderate-risk portfolio, which, while debatable, isn’t the worst option.

The most important thing is that you store your emergency fund anywhere that a) is secure, b) is liquid/accessible, c) keeps up with inflation, and d) is minimally volatile.

Survival Tip #2: Get Insured:

Another important, albeit obvious, proactive measure to mitigate disaster risk is to insure your property. Even if you’re just renting, you’ll want to have personal property coverage because you won’t be covered by your landlord’s insurance in most cases.

As reported by the Independent Insurance Agents and Brokers of America, the average cost of personal renters coverage is about $12 a month for $30,000 of property coverage and $100,000 of liability coverage. All things considered, that’s a not a bad deal.

Homeowner’s insurance costs will have a much greater variance and will depend on factors such as where you live and the value of your home. Whatever the case, though, you’ll want to make sure you have your bases covered.

Survival Tip #3: Keep Good Records

When disaster does strike, you’re going to need to make a claim for the property you’ve lost. If you keep an inventory of all the things you own along with their receipts, it will be make the claims process move much faster and will allow very little wiggle-room for insurers.

You will also want to secure various personal records and legal documents, which can be burdensome to obtain after a disaster. This includes but is not limited to:

• Birth certificates
• Marriage and divorce certificates
• Social Security cards
• Passports
• Insurance policies (auto, home, life, etc.)
• Health insurance cards
• Immunization records
• Prescriptions (medicines and glasses/contacts)
• Property deeds
• Vehicle titles
• Tax returns (for the past three years)
• Bank account numbers

In addition to maintaining proactive records, you’ll also want to keep a record of any immediate expenses incurred following a disaster. Depending on your insurance and the cause of the disaster, you may be entitled to reimbursement of these immediate expenses.

The best way to store your records is in a safe deposit box outside your home. A filing cabinet or home safe can sometimes work too, but you risk losing these records with the rest of your belongings depending on the severity of the disaster.

You can also scan and digitize your records before a disaster. Keep these on a password-protected flash drive or a secure cloud service such as Google Drive, Dropbox, Amazon Cloud Drive, etc. (just make sure to encrypt before uploading).

Survival Tip #4: Collect Evidence and Hire Help (If You Need It)

No one likes the idea of dropping a few thousand dollars on an expert — especially immediately after losing their home and personal belongings — but sometimes it’s the best course of action.

Depending on the nature of the disaster, you may have to lawyer up, hire a private adjuster, or at the very least be diligent in personally collecting evidence to make sure you get your fair share. The first 48 hours after a disaster are crucial, so take photos of everything and take notes on anything you believe could be important.

If the disaster is not a total loss, separate your belongings into two groups: damaged and undamaged. It is your responsibility to mitigate all damages to the best of your ability after, so if an item is salvageable, don’t abandon it assuming you can successfully claim it. Attempt to salvage what you can and document what you can’t.

Survival Tip #5: Stay Frugal and Get Paid

Now that you’re out of your home, your spending habits are going to have to change, both for better and for worse.

On one hand, you will be able to begin immediately cutting a few major expenses. Cable, Internet, gas, electric, water: you can cancel all these bills immediately if the home is a total loss. If you’re renting, be sure to request both your security deposit and a prorated refund of your rent through the end of the month.

On the flip side, you’re going to have a few immediate surprise expenses that fall into your lap. If your home has been lost, you’ll be spending extra on food, clothes, toiletries, and possibly transportation as well. You may have expensive medical bills related to the disaster or hotel payments while you find a new place to stay. The trick here is to be as frugal as possible and to pinch pennies until the dust is completely settled.

Simply put, don’t start replacing those designer suits or the 70” flatscreen TV you lost right away. It’s going to take time to get back to where you were, so for now just stick with the basics (even if that means going to the dry cleaners more often).

Try to limit how much you’re eating out, too, by shopping for shelf-stable foods (bread, nut butters, jelly, oatmeal, dried fruit, almonds, apples, pears, avocados, cherry tomatoes, olive oil, etc.) if you don’t have access to a kitchen. Look for packaged goods that are healthy but not too expensive, like wholegrain crackers or granola.

Ideally, you won’t have to worry about these things for too long. Reach out to a friend or family member with spare room if you can. Just make sure to get out of their hair as soon as possible, and pay it forward the next chance you get.

Lastly, if cash gets tight and your emergency fund wasn’t sufficient, you have a few last-ditch options. Red Cross offers immediate disaster relief, which you should take advantage of if you really need it. The organization will be able to provide you with food, water, emergency supplies, and even cash for immediate housing.

You can also reach out to any creditors and ask for an extension due to your circumstances. Many creditors will be willing to work with you, especially if you notify them before a payment is due.

Your last and final resort is to borrow. Request an advance from your insurance company and/or access your credit cards. If you do, though, understand that paying off these debts becomes your number one priority.

Until next time,

Jason Stutman

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