Planning ahead can help Houston residents financially survive disasters
Surviving a disaster like Hurricane Harvey can be hard not only physically and mentally but financially as well.
Claudia Mollerup-Madsen, vice president and financial advisor with the wealth management division of Morgan Stanley in Houston, offered Houston-area residents tips to financially prepare for emergencies, so they can recover more quickly when disaster strikes and keep their credit strong.
“Very few people who lost their homes during Hurricane Harvey were prepared for such large losses,” Mollerup-Madsen said. “Many did not have flood insurance or an adequate home insurance policy to cover the contents.”
She said setting aside an emergency fund with three to six months of expenses can help toward getting back on your feet after facing a flood, fire or other disaster.
“Cut back in areas of your discretionary income to allow you to start or grow your emergency fund. Having an emergency fund can go a long way toward helping a victim of a natural disaster get through the first few days,” Mollerup-Madsen said.
If having three to six months of savings sounds like an overwhelming objective, she said a goal of saving $500 is a good place to start.
Mollerup-Madsen encouraged disaster victims to immediately let their creditors where they can be reached once they land at their temporary shelters and to stay on top of their larger bills to avoid consequences.
“While emotions of fear are high, it’s easy to forget that bills still must be paid and creditors must know where to find you if you are late on payments,” she said. “If a mortgage does not get paid, the house can be foreclosed on. If a car note is not paid, the car can be repossessed.”
She said homeowners affected by disaster can also reach out to their mortgage companies for help with their payments.
“Some mortgage companies will offer relief by putting payments on hold, freezing foreclosures and offering special financing to rebuild,” Mollerup-Madsen said. “After Hurricane Harvey, many companies offered forbearance, which means the lender suspended payments for a period of time. However, it is important to note, interest is still accruing during this period.”
Mollerup-Madsen said disaster victims should get all negotiations and new terms with their creditors in writing in case disputes come up later.
Smaller bills like cable, internet and gym memberships that are set up on auto-pay will still take money from accounts even if a home is destroyed or damaged, so Mollerup-Madsen said residents should make sure to call their bank to get the payments turned off.
Some disaster victims use retirement savings accounts to cover their recovery expenses. Mollerup-Madsen said some 401(k) plans allow people to give themselves a loan, paid back in monthly installments with interest that goes back into the account. She said with individual retirement accounts or IRAs, there are penalties for taking out the money before the age of 59 and a half years, plus the normal income taxes for the amount they take out.
“If you do indeed withdraw money from your retirement savings, do so conservatively so that you are not taking out too much,” Mollerup-Madsen said. “To help minimize penalties, minimize the amount you are taking out. Make a plan to replenish your retirement savings accounts, so you can still retire comfortably when you come of age.”
Drew Szilagyi is the home builder finance — eastern region manager for Flagstar Bank. His Memorial home was completely destroyed after it took on six feet of water. The home was recently torn down, and Szilagyi said he hopes to be in a new home rebuilt at a higher elevation at the same location by this time next year.
He recommends people keep track of their important documents and that they store additional copies elsewhere.
“Store them high up in a moveable fireproof and waterproof container. Have a duplicate set kept in a safe place elsewhere — be it at work, or at a family member’s or friend’s house,” Szilagyi. “If at all possible, have all important items saved digitally on a portable hard drive as well.”
Looking back, he said one thing he would have done differently is take out the maximum coverage on the contents of his house on his flood insurance.
“I’m ashamed to admit that I completely underestimated just how much stuff we had and should have taken the time to do an inventory compilation. Filling out the insurance claim forms and listing our possessions lost room by room was eye-opening and depressing,” Szilagyi said.
Mollerup-Madsen said making plans prior to when disaster strikes is key to doing well with your money despite the hardship.
“Having a financial plan is necessary to avoid falling into debt during an emergency,” she said. “More than 60 percent of Americans do not have even $1,000 saved in an emergency fund to cover an unexpected situation. Don’t be a statistic.”