Preparing for and Recovering from Financial Disaster
We have all seen the photos of the devastating effects of Hurricanes Katrina and Rita " destroyed or badly damaged homes, the loss of jobs and businesses, important records ruined. Recovering from a disaster such as this can be a long-term process, especially in terms of financial recovery.
First, realize that it can happen to the best of us. Whether the disaster is a hurricane, fire or flood; a devastating accident or illness; a difficult divorce; or sudden unemployment, it's important to know how to recover financially. A little preparation now can go a long way should you suddenly find yourself plunged into a full-scale crisis with severe financial repercussions. Second, be assured that there are many strategies to help you weather a financial calamity, and the sooner you initiate a recovery plan, the sooner things will get back on track.
In light of the devastation cause by the recent hurricanes, the Illinois CPA Society offers these guidelines for prepping for and coping with unexpected financial setbacks:
Steps for Financial Preparation
Establish an emergency fund and save until you have enough to carry you through six months of basic expenses.
Check your insurance coverage and address any shortfalls.
Inventory your household possessions by making a list of everything you own. If disaster strikes, this list could:
* Help you prove the value of what you owned if those possessions are damaged or destroyed.
* Make it more likely you'll receive a fast, fair payment from your insurance company for your losses.
* Provide documentation for tax deductions you claim for your losses.
Buy a lockable, durable "evacuation box" to grab in the event of an emergency.
* The box should be large enough to carry a small amount of traveler's checks or cash; negatives for irreplaceable personal photographs; copies of important prescriptions; health, dental or prescription insurance cards or information; copies of your auto, flood, renter's or homeowners insurance policies (or at least policy numbers) and a list of insurance company telephone numbers; and a list of bank account, loan, credit card, driver's license, investment account and Social Security numbers.
Steps for Financial Recovery
* Evaluate your resources: Evaluate your present resources and any additional revenue streams you could tap. If you were laid off, you may be eligible for unemployment benefits; if you were injured on the job, workers' compensation may help bridge any financial gap. Do you have disability insurance through work? Is there a severance package from your former employer? Can other family members contribute income from a job or savings? Borrow only as a last resort, and before you dip into your retirement funds, take a careful look at the income tax and penalties associated with an early withdrawal.
Develop a realistic budget: Develop a realistic budget to cover the time it will take to recover. Have a frank and realistic discussion with your family, and include them in the process of setting spending priorities. Their cooperation in trimming spending while you regroup will be essential to getting over this rough patch.
Exercise discipline: Define your priorities, and stick to them. Adjusting to the fact that you can't spend the way you used to will be one of the greatest challenges in managing this financial crisis. Plan carefully, and if you are operating with a reduced budget, create a plan for paying your essential bills and then cut back, eliminate or postpone other expenditures.
Contact creditors: If you can't cover all of your expenses, contact your creditors and try to negotiate a payment plan. Many of them will be willing to accommodate you, but starting that discussion will be up to you. Determine an amount you can pay consistently until your financial picture improves, and then pay that regularly. Be realistic. If you fail to follow though on your agreement, your creditors may seek other avenues for repayment.
File insurance claims: Estimate the losses you have sustained as a result of the disaster; gather your policy numbers; and then file the appropriate insurance claims. The sooner you get started, the sooner your claim will be processed. If you do not have a complete listing of household items, check with relatives and friends for photographs taken in your home that may help to support your claim.
Seek financial help: Get help. Take advantage of any job training, counseling, money-management courses, state programs or community resources that can assist you in resolving your financial difficulties. If your debts become unmanageable, contact the Consumer Credit Counseling Service nearest to you.
"Coping with the stresses and demands of a job loss, natural disaster or financial crisis is never easy, and recovering can seem almost impossible. However, there are numerous resources out there that are available to get you back on your feet," said Elaine Weiss, president and CEO of the Illinois CPA Society. "It's important to avoid making snap decisions that you may regret later. If you have questions, consulting a CPA or other professional adviser is a good way to get overall financial advice and create a recovery plan."
By Illinois CPA Society
This page is updated on May 5, 2013.