A New Year's resolution for all of us

As this is a website about your financial life, it would be appropriate to list New Year’s resolutions aligned with financial improvement. But, instead, this resolution is really an action. Because if you read my books, you understand the emphasis I place on managing risks and identifying and mitigating them across all aspects of your financial life.

For the New Year, I would like you to please commit to setting aside some time to create a disaster plan.

While we both hope you’ll never have to use it, you should do it to mitigate the financial, physical, and emotional toll of a disaster. I thought about this recently while on a trip to Asheville, NC, seeing the destruction along the French Broad River from Hurricane Helene just a year earlier. The physical damage is still visible when you imagine what it was like before the storm - the buildings, which are now only concrete pads. However, you don’t see the lives impacted and scars left because they’re not there anymore. Or that three-quarters of the damage from the storm, almost $60 billion, with more than 100 lives lost, occurred in western North Carolina.

Asheville is 250 miles inland and sits at 2,100 feet above sea level, and a powerful hurricane, even a Category 4 storm, would never cause so much devastation in such a place, right? We know hurricanes will weaken as they move inland, so many might assume there is little to worry about, other than some heavy wind and rain. By the time Helene was over the area, it was a tropical storm. If you drew a map of hurricane preparedness, you would find the residents of the Big Bend area of Florida (where Helene made landfall) were prepared. As you go farther inland, the number of residents who have done any preparation drops closer to 0. When it was all said and done, North Carolina took the brunt of a storm that most would think would only impact the southeastern coastline. But the lesson to all of us is the same - a disaster can strike anyone at any time and anywhere, regardless of your assumptions.

Here's how I think of disaster planning: identify, mitigate, avoid, and recover. First, identify risks. There are natural disasters: hurricanes, tornadoes, earthquakes, extreme heat, cold, and water (liquid or frozen) that lead to significant damage from wind, floods, and mudslides, like a week-long power outage or a knocked-out bridge. And some are both natural and human-caused, such as fire. For each one, how could it affect you? Is your home above the 100-year flood zone level? How sturdy is your roof and structure? Where could water enter? Once you complete the list of risks at your location and situation, how could they be mitigated? Sure, you could move to a higher location in a sturdier structure, but you could also mitigate where you are by making sure you have enough of the right kind of insurance and sufficient emergency savings to recover from a disaster.

Mitigation also includes preparedness. Fire extinguishers and some fully charged cell phone battery packs. A couple of gallons of stored drinking water, and some that can flush a toilet. Of course, you can go further, buying a generator and storing food. It all depends on what mitigation you can do and afford for the most likely risks you’ll face where you are today. Preparedness also includes your potential response to the disaster. Some in wildfire areas may choose to stay and defend rather than evacuate. Not judging whether that’s the right or wrong call, but if you’re going to stay, get some fire blankets, store water, and learn from experts how to lower the risk to yourself.

After the identify and mitigate steps, comes avoiding the risk. For fire risk, there’s the exterior of your home to keep clear, plus checking extension cords, limiting the use of portable heaters, keeping the dryer vent clear, and ensuring smoke detectors are working. In other words, steps to take to avoid the risk beforehand. Then, what are the steps to take during the risk? How to escape your 2nd-floor bedroom if the 1st floor is on fire, for example. Should you get a fire escape ladder? For extreme weather events, while you can drive away, where do you go? Maybe there’s family a few hours away, but what if not? Do you have enough in an emergency fund for a week in a hotel? [I read that many didn’t leave New Orleans during Katrina because they didn’t have the money, even when offered a free ride out of town.] Avoiding the risk is basically a temporary relocation until it’s safe to return. While there may be some government assistance, it's not guaranteed and won’t be enough. Again, think through some scenarios of being displaced for a few days or one or two months. What could that be and how much would it cost? Do you have the funds or credit limit to cover it? If not, your plan must include the additional money to beef up your savings.

The last step, recovery, will be the most costly. For the most severe disasters, resulting in the loss of a home and possessions, immediate physical recovery puts a big hole in your finances, followed by the financial and emotional recovery that will take a long time. The disaster planning for this step is to save enough (retirement, non-retirement, emergency savings) to cover immediate recovery and then replenish over time, illustrating the challenge for those near and in retirement. They have less time on the clock to keep working and recover financially, so they need much more put aside to recover from a disaster.

One final piece to completing the plan is to address our family situation. Take everyone's physical capabilities and limitations, as well as their responses to stressors, into account. If you won’t evacuate, will you insist your spouse and children will? But can your spouse do that on their own? It can be overwhelming to go through all the permutations of disaster scenarios, but at least start by acknowledging our limitations and our dependency on each other for the more likely scenarios, and factor that into your plan.

I hope this resolution action spurs you to spend the time to identify, mitigate, avoid, and recover from disaster risks. As I wrote this, I too realized there are some things that I need to take care of, so I took an action for myself to address several things at the start of the new year.