If you sustained financial and personal losses from a hurricane, one of the most difficult challenges you face is to get your life back to normal. Storms destroy thousands and thousands of homes. Businesses are upended. Sometimes it even takes lives. Even thinking about the losses can make the strongest person melt down and cry. If you are facing this situation, you deserve a time to come to grips with the magnitude of the situation.
But after a while, you have to face the reality of the situation and make plans to continue your life, your job, your family, and if you own a business, you must get on with that too. Before discussing financial and business plans, it is important to talk about people that have a family with young children living at home. It is so important to be their guiding light. Help your kids to feel safe and understand that the future is bright. If you do not believe this, dig deep within yourself and put on a brave face. Find someone to talk to about turning your life around. You might need to find a family member, a minister, a social worker or a mental health professional. Do not feel bad about asking for help or needing to talk to someone. Recovering from a natural disaster can be as difficult mentally as a loved one’s death. If you did lose a loved one in a natural disaster, my heart goes out to you. You too should work to live life to its fullest. There are people that care for you and want to help.
There is no perfect step-by-step method to getting your life back in order. With that thought in mind, the following information is in an outline form. Use it as a guide. It is up to you to fill in the details that best fit your personal and financial recovery. The first step in any disaster recovery is to assess your financial situation.
Where do you have available cash?
If you have CD’s and you need to access them, ask if your bank or credit union will waive their early withdrawal fee.
Mutual funds, stocks, and bonds.
If you have any funds that are losing, this may be time to take the tax loss and use the cash value. Tax loss harvesting can be a complicated matter. Ask a financial adviser or accountant if you need more detailed help. The key to this aspect is keeping track of your losses and gains so it can be reported when you file your income taxes.
Life insurance cash value
If you have a whole life insurance policy, see if you have a dividend cash value. This may be cashed in without a loan. Note that loans on life insurance policies do have interest and some life insurance companies pay lower dividends to customers that take loans.
Many retirement accounts do have special hardship provisions. Although remember that if you do take retirement cash values, it may seriously affect your future retirement. If you must take money out, by all means, do take it. Just be aware of the consequences. If you would like more information on retirement plan loans and hardship withdrawals, read my blog post “Don’t let Harvey take a bite out of your retirement.”
What insurance do you have and what will it cover. What is your deductible?
a. Liability insurance
b. Flood insurance
c. Wind damage insurance
What are your expenses right now?
a. Current expected living expenses
b. Can you live in your home?
c. Do you need to make arrangements to live with a relative or rent a home? How will you pay for those expenses?
d. Food budget – this can be one of your biggest expenses. Eating out may have been a necessity after the hurricane, however, make a food budget and stick to it. Your family will be healthier, and you will save money.
e. Transportation – Does your vehicle need repair? Did your vehicle sit in water that came to the bottom of the door? When water is high, it can seep into vital working components and cause expensive damage. Your vehicle needs to be inspected by a mechanic even if it appears to be running well. Do you have insurance and what is the deductible? Do you need a rental car or can you borrow a car?
f. Child expenses – Do you have education expenses or child care expenses? After a natural disaster, you may need to find different child care if your previous child care business is not operating. What are your children’s extracurricular activity expenses and will they continue?
What do you owe?
a. This must be one of the hardest aspects of rebuilding after a hurricane. If your home has major damage and you have a mortgage on it, you still must pay the mortgage.
b. Make a list of what you owe along with the contact numbers of the creditors.
c. If you can continue to pay payments, do so. If you need an extension, contact your creditor first. Do not wait for them to call you. Creditors that have customers in disaster areas know people are hurting financially and most will be willing to work with you. Perhaps you can work out a lower payment or a delay in payment.
d. If you can continue making payments to your creditor, do it. Many student loan creditors have already contacted student loan holders to let them know that they have an automatic grace period on paying back their loan. However, one important point is not mentioned. The interest continues to add up. Do not take an automatic extension if you do not need it.
Do not forget your taxes.
Property taxes still must be paid. If you pay quarterly income taxes, you can adjust your payments based on your expected income. If you can foresee that you will need an extension, take what is available. However, as with most creditors, do not use the hurricane as an excuse to put off what must be done. Interest will continue to grow on what you owe.
Do not overlook taking personal and business casualty tax losses. The floor for personal liability losses is 10% of your adjusted gross income. There is no limit for business losses. If you are not sure how to take tax losses, it is important to talk to a tax professional.
One item often overlooked for personal losses is clothing. Most garments that are damaged from flood water need to be thrown out because they will become contaminated with mold. Document every item, it all has a value. If you are not sure what value to use, refer to the IRS’s clothing valuation for donations. That may give you some idea as to what valuation to use for a loss.
Detail everything that is a loss of from your home and business. Taking pictures of every item may be labor intensive however it may save you a lot when it comes time to file your taxes. You must be able to prove any loss you claim.
Getting back to work.
After you have accessed your readily available assets, you should consider your employment status. Is your employer open and is your job continuing? If you are a small business owner and you are rebuilding, this may seem like a crazy idea. However, ask yourself, is it time to get another job while you rebuild your business? If you can get a second source of income going, this is the time to do it. An additional job does not have to be in your current line of work. One of the most readily available jobs will be sales, even if it is telemarketing. Just make sure it is not straight commission (unless you consider yourself a selling wiz). This is supposed to be a second income, not a head and heart ache. Every job or career has something to do with sales, so a second job in sales may help you get your small business back on track.
Make a budget
If you had a budget, it probably needs a lot of revision. If you do not have a budget now is the time to start. Trying to pay off debt and rebuild your finances after a disaster without a budget is like running east and looking for a sunset. You will work yourself to death and never know if what you are doing is working.
Creating a budget is easy. The simplest budget tool I have found is an app called Mint, and it is at the right price, it is free. If you are electronically challenged, I would still suggest you try Mint. You have nothing to lose but a little time. If computer apps are outside of your comfort zone, then make a written budget. It does not need to be complicated. List what you owe and your sources of income. If what you owe is bigger than your income, go back and rework the list of what you owe. Contact the creditors and cut expenses if necessary.
Budgeting is an ongoing process, not a once a year exercise. At least once a month, take the time to review what is working and what is not. Do you need to be more mindful of spending in one area of your life?
As you look for ways to cut expenses, remember that there are some costs that you need to keep. Insurance is one of those areas. If you have more than one vehicle that was damaged by water, will you replace each one immediately? If the answer is no, then suspend the coverage on vehicles that are just sitting. I would not recommend dropping coverage. However many liability carriers will allow you to suspend coverage for vehicles that are not being driven. Contact your insurance agent and ask for help in making this determination.
If you have life and disability insurance, do not drop it if possible. If you have cash value policies, talk to your agent to see if the premiums can be lowered. Universal life policies may allow you to make lower payments and whole life policies may permit you to pay premiums with cash value or policy loans. Do not drop coverage to start a new policy until you have a replacement. Older permanent policies cannot be repurchased at the same rate, and you will more than likely lose some value. If you must make a change, ask your agent if there is a commission to be paid on the new policy. Some life insurance carriers will waive commissions on internal replacements. Although if your new policy is not cheaper than what you can purchase on the open market, they are not doing you any favors. You may need to find a new life insurance carrier. If your income has changed and you need to get a cheaper policy that is a good reason to change policies, however, be comfortable with any changes you make. The same goes for term life insurance. If it is a policy you have had for a long time, there may or may not be something cheaper available. You may need to do some shopping for coverage. This is an important point that bears repeating, do not if you are applying for new insurance, do not discontinue your existing insurance until the new insurance is delivered and paid.
Everybody’s situation is a little different, so it is impossible to detail every aspect of rebuilding your finances after a big loss like a hurricane. The details of dealing with insurance companies, contractors, and a mortgage company could fill a book. However, good advice is to be patient and persistent. And if you are a God-fearing person, prayer helps a lot too.
Posted by: Van Richards
Van is the founder of Advice4Retirement and Advice4LifeInsurance.
You can contact him at firstname.lastname@example.org Follow on Twitter @VanRichards or Facebook at Advice4Retirement or Advice4LifeInsurance