Personal Finance Topic #201 - How do you prepare for financial tsunami?

How do we prepare for financial tsunami?

One week ago, Japan, one of the most well prepared countries in the world experienced triple disasters in one single day. Magnitude 9.0 Megaquake, 30 ft MegaTsunami, and catastrophic failure of nuclear power plant.  This was, for sure, once in a lifetime event.  But we must recognize that it happened in our lifetime. 

So what can we do to prepare for financial disaster, as some folks have experienced two major market downturns in the last 75 years.  Can a third financial disaster be far behind?

Items to prepare for financial tsunami

Budget - If you have never lived on a budget, this is a good time to plan, create objectives, budget, and implement our income and expenses.  Once a tsunami hits, we already have a plan, and know what to tighten and know what our true needs are. You may want to start deleting unnecessary expenditures like: cable TV, extra phone service, smaller living space/expenses, dining out, some vacations, new cars, etc...

Emergency fund / Cash holding - ATMs and banks may not be operational, and most people will have run out of cash.  Stash enough money away to last you for about a week, and keep it in a safe place you can easily get to.

Prepare a disaster plan / insurance - There is no substitution for good insurance policies with adequate coverage.  You want to transfer risk with little cost to your finances.  Insurances include homeowners, renters, auto, medical, disability, flood, wind, earthquake, etc.  It's too late to think about an insurance 10 days before being hit by a hurricane, or 10 seconds before tree falling on your car after a windstorm.  Make sure you are not underinsured.  One mistake can cost you your finances. 

Home inventory / Home equity - It would be a good idea to list or videotape all of your possesions and store on several media.  Do the same for old and new photos. Paper, flash drive, CD, and hard disk.  Keep it up-to-date once a year.  Additionally, keep a copy of will data form with all of your personal, financial, banking, insurance, and investment information on one sheet of paper.  High home equity is important if you want to rebuild.  If your mortgage is higher than your home value (home equity is negative), you will have a hard time getting a loan to rebuild. 

Estate planning / documentation - Many tsunami victims had no idea they would be dead or injured when they woke up on the day of the giant tsunami.  Write a will, durable power of attorney, and living will, today, in a protective container, with a copy in the hands of trustee, far enough away.

Debt - I urge everyone to commit to reducing or eliminating consumer debt in the next few years.  If the last three years have not taught you a severe lesson in managing personal finance, you must have been asleep at the wheel. 

There is no assurance that any of my idea will guarantee preservation of all of your essentials.  But I assure you that by NOT following my suggestions will fail you and your family when you need these essentials most.