Will Your Finances Weather the Storm?

As the process of healing and rebuilding continues ever so slowly in hurricane-ravaged areas, many of us are taking a closer look at our own lives. While many of us do not live in a hurricane zone, we are all reminded of the possibility of Mother Nature knocking at our door with a disastrous tornado, earthquake, or tsunami. But a house fire, car accident, serious illness, or job loss could prove just as devastating.

If a disaster should strike, money is the last thing you need to worry about. You can make it easier on yourself and your loved ones if you proactively disaster-proof your finances. The following are a few tactics that can help you when you most need it:

•Create a monthly spending plan. The US Bureau of Economic Analysis estimates that personal savings as a percentage of disposable personal income was -0.7% in August. That means the average person spent more money than they made in August. If you're on par for average, you probably won't need to wait for Mother Nature to create a disaster—you're creating your own.

•Create a budget and stick to it. Since budgets are in the same category as diets—most of us begin one every January and are off by February—you need to find a budget that works for you in order to stick with it. For most of us, an automatic online budgeting system works the best by easily tracking transactions from multiple checking accounts, debit cards, and credit cards. But even if you use the cash and envelope method of budgeting, create a spending plan and commit yourself to it. Make sure you set aside some money for personal spending for those impulse buys, which will give you some freedom without negatively affecting your overall plan.

Baltimore Sun

•Back up your financial records or use a Web-based system. If you are not taking advantage of the Internet to track and control your finances, you may be taking an unnecessary gamble. PC-based systems, as well as paper, can be destroyed in any disaster. Even a broken water pipe or a small house fire could destroy your computer, and the records held on it. Mike Himowitz of the says that although a flood can destroy your PC, backup files in an offsite location most likely will be protected.

"More importantly, with online banking, you can access your account and pay bills from any PC with an Internet connection,"Himowitz says. "One of the main concerns voiced by those who fled their homes to escape Hurricane Katrina is that they have no access to their money and no physical way to pay their bills. With online transactions, your physical location—and the location of the PC you're using—no longer matters."

Himowitz suggests using a storage company to provide online backup. Quicken.com provides budget and personal finance software solutions as well as an online backup service. Another route is to employ a secure online spending management program, such as Mvelopes Personal (www.mvelopes.com), which tracks finances and pays bills from any Internet-connected computer.

•Set aside an emergency fund with 3 to 6 months of living expenses. In the event that disaster strikes, if you don't have enough set aside to cover basic living expenses, including mortgage, food, and car payments, things could quickly go from bad to worse. An easily accessible emergency fund is one of the single most important things you can do for your financial well-being.

A savings or money market account, not real estate investments or stocks, provides easy access to your money. Select an account with no service fees, which can be as high as $100 a year. Also, make sure you are getting a good interest rate. Many online banks, like NetBank.com, EverBank.com, and EmigrantDirect.com, currently offer savings accounts with yields of 3% to 4%, using an average daily balance instead of minimum daily balance.

If setting aside this much money seems unattainable, start small. Cut out those daily trips to the vending machine, and you'll be amazed how quickly the money adds up. Use cash gifts, tax refunds, and annual bonuses to build your fund. When you set up your monthly spending plan, include an automatic contribution to your emergency fund.

•Create an estate plan. Most people would like to avoid planning their estate, but by doing it now, you will be taking care of your loved ones' future. Many people believe that a will is all they need. For some that may be true, but it can also force beneficiaries to pursue costly and difficult court proceedings, called probate, in order to carry out your wishes. A trust usually avoids the expensive legal mess and makes the transfer of assets relatively simple. Most people should have both a trust and a will, but you should talk with an estate planner to see which is right for your situation.

You can purchase software to help you create a valid trust document, and then simply have a lawyer review it. It will still cost around $200 in lawyer's fees, but that's merely one tenth of what it could cost for a lawyer to draft the document. Review your estate documents often and update them whenever any major changes take place. Make sure your loved ones are aware of the documents and their location. Always keep copies of all important documents in a separate, secure site, such as a safe deposit box.

•Give to those less fortunate. Don't overlook the importance of charitable giving. Overspending all too often comes from our desire, not need, for more. Donating to a charity helps keep your needs and wants in perspective. And if disaster strikes your door, won't you be hoping others will do the same for you? If you are unable to give any money, donate some of your time. Call your local government office or visit www.unitedway.org for opportunities in your area.

What is truly important in our lives does not have dollar signs attached to them. By getting your finances in order now, if disaster does come our way, we can focus our attention on taking care of the things that matter most.

is president and CEO of

In2M Corporation and author of Money for

Life: Budgeting Success and Financial

Fitness in Just 12 Weeks (Dearborn Trade;

2004). For more information, visit www.

in2m.com or contact jeff.stevens@in2m.com. Reprinted

with permission from In2M Corporation.

Steven B. Smith