When you’re preparing your home for an approaching hurricane, you might go over your evacuation plan, put together an emergency kit, tightly seal the doors and windows and haul the deck furniture indoors. But what about getting your financial house in order?
As you’re scrambling to protect your home, yourself and your family, you might overlook the financial impact of a hurricane. The U.S. Congressional Budget Office estimates American households get walloped by $34 billion in annual losses from most types of damage caused by hurricane winds, storm surges and rainfall.
In most cases, none of the financial precautions you take “will really be necessary and the inconvenience will be limited to a few days. But it is always better to plan for the worst and hope for the best,” said Josh Simpson, a financial adviser at Lake Advisory Group in Lady Lake, Florida.
In light of the monetary catastrophes that a hurricane might cause, experts recommend taking these seven pre-storm steps to batten down your financial hatches.
How to prepare financially for a hurricane
1. Establish an emergency fund
Bob Castaneda, director of the master’s degree program in finance at Minneapolis-based Walden University, suggests putting money in a special savings account to take care of basics—like food and lodging—in case you’re not able to return home for a while following a hurricane. This should be done weeks, if not months, in advance of a hurricane.
The emergency fund should contain enough money to pay $60 to $70 a day in expenses for each family member, Castaneda said. At minimum, the fund should cover a week’s worth of expenses for your entire family. For a family of four, that would be roughly $1,700 to $2,000.
“From a financial perspective, an emergency fund serves as the safety net between an unexpected event and a financial crisis,” said Brian Walsh, certified financial planner and leader of the financial planning team at online lender SoFi.
2. Stash some cash
Store a small amount of cash in a secure place in your home, said April Lewis-Parks, director of education and corporate communications at Consolidated Credit, a consumer credit counseling service. This can help you overcome the inability to use your debit or credit cards at ATMs or stores during a power outage.
Financial coach Kasey Ring, president of Upward Personal Finance in Heber City, Utah, said you should stockpile enough cash to pay for at least two to three days of meals, lodging and transportation.
“Have a reasonable amount of cash on hand,” Ring said. “Storing a boatload of cash in your mattress or on your body is not advised. Your money is better protected in a federally insured banking institution.”
3. Set up electronic deposits
If you regularly receive paper checks for government benefits or other purposes, it’s wise to switch to electronic deposits before a hurricane hits to ensure you’ll have money in the bank when you desperately need it.
The U.S. Department of Homeland Security notes that a hurricane can disrupt mail service for days or weeks. In addition, a paper check could be stolen from your mailbox while you’re away from home.
Each month, more than 2.7 million paper checks for Social Security and Supplemental Security Income are sent to people living in hurricane-prone states, according to the U.S. Treasury Department.
4. Designate a credit card just for emergencies
Marine Federal Credit Union in Jacksonville, North Carolina, says the credit limit of your emergency-only credit card should enable you to buy enough supplies to last at least 10 days. Having a credit card solely for a hurricane or another disaster also can help track expenses that your homeowners insurance policy might reimburse.
You may want to choose an emergency rewards credit card that delivers rewards at places like grocery stores, restaurants, gas stations and hotels—places you’re likely to spend money in the wake of a hurricane.
5. Get rid of ‘bad’ debt
If you live in hurricane territory, wiping out “bad” debt can put you in a better position to financially weather a storm. Of course, you’ll need to tackle this debt reduction well ahead of a hurricane that’s bearing down on your town.
SoFi’s Walsh explains that there’s “good” debt and “bad” debt. Good debt, such as a student loan or mortgage, helps boost your earning power or net worth and typically comes with low interest rates.
Meanwhile, bad debt includes balances on higher-interest credit cards and loans. This type of borrowing typically doesn’t help you achieve your long-term financial goals.
“Bad debt not only eats up your budget with costly interest payments, but it also limits your flexibility to leverage debt in the event of a financial emergency,” Walsh said.
If it consumes a big chunk of your available credit, bad debt restricts the amount of credit you can tap into after a hurricane, he said. In addition, bad debt may hinder your ability to take out a lower-interest emergency loan, as that debt might bump up your credit utilization ratio and therefore push down your credit score.
6. Collect important documents
Your critical documents should be kept in a weatherproof “grab and go” kit in case you need to evacuate ahead of a hurricane, according to Walden University’s Castaneda. These documents include insurance policies, Social Security cards, driver’s licenses, birth certificates, passports, mortgage paperwork, tax records, wills and recent financial statements.
Experts recommend making copies of these documents as backups and saving them through a password-protected cloud storage service like Google Drive or Dropbox.
“Depending on how bad the storm is, the hard drive on your computer—let alone your hard copies—may not survive,” warned Jim Pendergast, senior vice president of altLINE, a division of Gadsden, Alabama-based The Southern Bank Co.
7. Review your insurance coverage
Pendergast recommends scrutinizing your homeowners insurance policy to fully understand what will and will not be covered in case a hurricane damages your property. Make sure both the structure and your belongings are adequately covered. Check with your insurance company or insurance agent—before a hurricane hits—if you think your coverage isn’t sufficient.
Keep in mind that policies in hurricane-prone states typically come with either a hurricane deductible, a windstorm deductible or both.
Also important to note is that standard homeowners policies usually don’t cover flood damage; separate flood insurance is normally required. During a hurricane, flooding causes much of the property damage.
In advance of a hurricane, take photos of your household belongings to support any insurance claims you’ll file, Pendergast said. In addition, the Insurance Information Institute advises creating a complete inventory of all your possessions and their values to help speed up the claim process.