Disaster-proofing your finances

Yolanda may have been a once-in-a-lifetime weather phenomenon. But that’s what they also said about Ondoy and the other typhoons. So it’s probably true only if you have the lifespan of a cockroach because almost every year we have these supposedly “rare” weather disturbances. The victims of natural calamities are obviously under a lot of physical, mental and emotional stress. Compounding their misery is the financial stress that comes with rebuilding their lives. This piece may have come too late for the hundreds of thousands of victims of Yolanda but it’s still worth writing if only to prevent millions of other families from suffering a catastrophic financial disaster when natural calamities batter us again. Here are smart financial moves that you should seriously consider to avoid a financial crisis in times of calamities.

1. Establish an emergency fund. It cannot be stressed enough that the emergency fund is your first line of defense against a financial crisis. I will refer to it as the “Yolanda fund.” Perhaps, that will create a sense of urgency and move people to put-up this standby fund as quickly as possible. You can argue that money was useless in the aftermath of Yolanda because there was nothing to buy. But there’s no denying that families with Yolanda funds were in a better position to prepare for such a calamity and more capable of alleviating their suffering after it struck. The money could have been used to buy extra provisions (food, drinks, a full tank of gasoline, etc.) to stave off hunger for three or more days. People with available funds were able to move their families out of Tacloban City a few days after Yolanda walloped Eastern Visayas. Thousands of those who did not have the resources to leave took their chances and queued for hours under the sweltering heat to get free rides to Cebu or Manila. The braver and more resilient survivors who stayed behind had to endure the chaos, misery and stench of death that took hold of the city. So it’s not hard to imagine how valuable an emergency fund becomes when an extraordinary calamity hits. A key requirement of a Yolanda fund is that it should be available all the time. A common advice is to put it in a savings account with an ATM card. I also recommend keeping 10-20% of the fund at home. However, if you are residing in a calamity-prone area, increase this to 40-50%. Another option is to withdraw 50% or more of your Yolanda fund when there is a strong typhoon approaching and just deposit it back if unused. Remember, cash is king when there’s a disaster. ATM and credit cards will be useless if communications totally break down as what happened in Tacloban City after Yolanda struck. Put the emergency cash, an ID and other valuables in a waterproof money pouch or bag which you can strap securely to your body so you won’t lose it in case there’s a flash flood, storm surge or tsunami. It’s also a good idea to split the cash among adults and older teens in the family, each with their own body-strapped money pouch. If you are the only one holding the money and you are swept away by floodwaters or get lost, your family will be left without any cash.

2. Insure your home and business. When your home is in the path of a super typhoon packing winds topping 300+ kph, it will likely sustain some damage. There are towns in the Visayas where 80-90% of homes and other structures were partially or totally damaged by Yolanda. Earthquakes, like the one that hit Bohol, can also turn to rubble in less a minute one of your most valuable and expensive possessions. Your ability to rebuild quickly your devastated home will greatly depend on available funds. An emergency fund is simply not enough especially if it requires major or complete reconstruction which can cost hundreds of thousands or even millions. That is why it is extremely important to have your home insured. It probably took you many, many years of sacrifice and saving to have it built. I’m pretty sure you prefer not to go through it again. Well, you may have to if your house is not insured. Even if you already have substantial savings it is still wise to get home insurance. Why pay for the rebuilding yourself when you can let someone else shoulder the cost? Insuring your home is not that expensive. It will only cost a few thousands for every million worth of property to get a year’s protection. To me this is a very small amount to pay in exchange for your peace of mind. Make sure that your insurance covers natural calamities (typhoon, flooding, earthquake, etc.) and include the contents of your home in the coverage. If you own a business have it insured, too. Your business, like your home, is also under threat from natural and man-made disasters. The value of your business could be me a lot more than your home. So it’s only logical that you also get financial protection for it.

 3. Get life insurance. I don’t mind sounding like a broken record. I will keep on reminding you to get adequate life insurance if you still don’t have one. You will never know when your time is up. It could be next year, next month, next week or tomorrow. Think about this for a minute. Will your family be able to survive and continue to live comfortably in the months or years to come if the grim reaper fetches you tonight? Will your children be able to finish school and fulfill their dreams when you are no longer around? A life insurance policy is one of the best gifts you can give your family. It’s a great expression of your love because it allows you to take care of them even after you are gone.

4. Diversify your investments. Can you imagine your loss if all your assets are in the form of real estate and rental properties in Tacloban City? What if all your savings are sunk into a business in the city and it was wiped out by the super typhoon. Do not put all your money in just one investment even if the prospects are very bright. One can never predict what the future holds for any investment. So put some of your funds in other investment vehicles… and in different areas. If you are really in love with real estate, acquire properties in different towns and provinces. If you own a business, consider putting some of your profits in more liquid investments like mutual funds, UITFs, and stocks.

5. Digitize your financial records. Important documents like birth certificates, passports, diplomas, land titles, car registration, passbooks, certificates of deposits, proof of investments in mutual funds and UITFs, stock certificates, and you’re your family pictures are among the things that often get damaged in fires, typhoons, and flooding. Perhaps it’s because we don’t put much value in these pieces of paper and we feel it’s not worth our time and effort to keep it safe. Or they are simply forgotten in our rush to protect life and property. The victims of Yolanda and other calamities may not feel the immediate effect of losing important documents, but they will, soon enough. And it’s not easy to reconstruct these documents especially if you do not have copies. Take time to digitize all of your important documents. You can do this by scanning or taking a picture. Email the image files to yourself so you have copies online and will be able to retrieve it anytime, anywhere. Don’t just keep the files in your computer or in a disc because these can also be damaged by a disaster. For good measure, keep disc copies in a different physical location; sort of your offsite back-up. I have mine in Cebu, hundreds of kilometers and across the seas from where I live. We cannot prevent natural disasters from happening, but we can prepare for it in advance. PREPARATION is the key to avoiding a financial crisis.

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This article is written by Mr. Alvin Tabanag - Author of the best selling book "12 Steps to Build Wealth on any income and founder of Pinoy Smart Savers Learning Center.
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