Develop A Good Emergency Plan to Also Protect Yourself Financially
The tragic earthquake, tsunami, volcano and nuclear disaster that hit Japan are good reminders that comparable natural disasters such as tornadoes, forest fires, flooding, hurricanes and earthquakes can hit any community. No city or town is immune to the power of nature. So what happens to people when a natural disaster disrupts their way of life and their source of income?
A recent survey has shown that 60% of Canadians wouldn't be able to meet all of their financial commitments if their paycheque was delayed by just one week. The recent earthquakes in both New Zealand and Japan along with flooding in Australia have shown that it isn't hard for a natural disaster to prevent people from going back to work for many weeks. If it happened in New Zealand, Australia, and Japan, it can definitely happen in Canada. So how do we protect our finances, credit and family from events like this? Here are several things you can do:
1. Create an emergency savings account
Ideally you should always have at least 1 to 3 month's worth of income in savings to tie you over in case you lose your job, suffer a health problem or experience a family emergency, but you have to start somewhere. So begin by at least saving a few hundred dollars and put it in a separate emergency savings account. This might mean that the next time you unexpectedly receive a small gift, bonus, or refund, you save it. This is one way to jump start a savings account quickly. Odds are you’ll end up using this money for vehicle repairs or some other unforeseen expense, so increase it to $1,000 or more as soon as you can.
2. Don’t over use your credit cards
You can’t predict when a disaster will strike or when you can’t make your payments. If you are unable to make your credit card payments because a disaster interrupts your income and you aren't able to make your full payments on time, there is no guarantee that your creditors will be lenient and understanding, and your disrupted payment history can easily impact your credit rating for 6 – 7 years. We have one staff member who quit her previous job, working for a creditor who adopted a harsh approach towards victims of Hurricane Katrina.
So how do you protect your credit during a natural disaster? Start by trying to pay off your credit card balances in full each month, and if you do need to carry a balance on your card for a short time, try not to owe more than you can comfortably pay off in three months. If you use your credit in a very responsible manner like this, it should be far easier to weather a financial storm, and if you do have a problem, your creditors will likely do their best to accommodate you.
3. Make a plan to pay down your debt
If your credit card balances are high, make a plan to pay them off as quickly as possible and give yourself some breathing room. Unforeseen events can often be the straw that breaks the camel’s back and propels people towards bankruptcy or losing their home. If you need help making a plan, contact a financial planner or make an appointment to speak with a Credit Counsellor (most non-profit Credit Counselors offer free counseling for things like this).
4. Prepare your home and your family for a natural disaster
If you don’t already know, find out the types of natural disasters that are most likely to affect your community. Prepare an emergency kit and make sure you have a supply of bottled drinking water, nonperishable food that could sustain your family for a few days and some cash, as electronic means of payment won’t work with large scale disruptions or natural disasters. For more information on preparing an emergency kit or preparing an emergency plan visit the Government of Canada website GetPrepared.ca.