It was only seven days into the new year when wildfires swept through Southern California, quickly and relentlessly destroying everything in their path — including cherished neighborhoods, famous homes, the homes of friends, and places like my elementary school and chapel.
I was in the process of writing this month’s article, and I had planned to discuss how we can improve our finances by working on them as a habit for 20 minutes at a time a few times a week, much like New Year’s resolutions to exercise 3 -5 times a week or to meal prep on Sundays.
It became apparent with a natural disaster circling us that life doesn’t always pause for us to continue with our resolutions. I couldn’t write as if nothing had changed when everything around us had changed.
Then, we watched and read incredible stories of fortitude from the survivors and volunteers over the next week, which made me look at our columns in a new light. What I had intended as advice for a new year became something much more relevant.
The fundamental financial planning principles we discuss in our weekly column become even more critical during a disaster.
Simplify and organize
My favorite video featured an 89-year-old grandma who lost everything but was determined to rebuild. In her short message, she shared two powerful pieces of advice. First, it’s never too late to start again or change your financial plans. Second, as she rebuilds, her focus will be on simplicity. She’s determined to avoid accumulating unnecessary belongings and to be more mindful about how she spends her money.
While no amount of planning can fully shield us from the devastating effects of events like natural disasters, here are some ways financial planning principles would be of help in the early stages of the disaster.
—Emergency savings: We recommend an emergency savings account before any investments, which is generally equal to a minimum of six months of income. Besides being helpful if you change employment or take time off from work, this will also help with transportation, lodging, food, and supplies during a crisis. Only 21% of Americans have more than $5,000 in savings.
—Document organization: Keeping essential financial documents organized and in one accessible place makes it easier to record them quickly or retrieve digital backups if needed.
Teresa Rhyne wrote about organizing and storing your estate documents in last week’s article. I found fire-retardant laptop cases with built-in file folders online for about $60.
—Limit credit cards, subscriptions, and bank accounts: Frequently review and eliminate unnecessary (and costly) accounts. You will have less to manage (and remember to pay) during a crisis, giving you more time to focus on safety and planning your next steps.
—Review contracts (including insurance) routinely: I suggest having an area of your home, whether it is a home office or a small desk in the corner, with a file drawer, scanner, and printer, specifically for doing this type of work like reviewing and signing documents and paying bills. If you are displaced right now, get a file box and a large binder with pockets to keep the necessary paperwork. A portable scanner is also invaluable.
—Less spending means less clutter: A decluttered home makes it simpler to locate emergency items like flashlights or documents like passports when every moment counts. With fewer unnecessary belongings, there’s less to maintain, less to lose, and less to replace.
There are many resources and books on how to simplify and declutter your home. One of my favorite free resources is The Gentle Art of Swedish Death Cleaning Sharing and Caring Facebook group.
Living within your means
Another revealing video was posted by married TikTok and former reality show stars who had lost their home in the fire and were uninsured.
The timing of insurance companies canceling policies just before the fires was devastating for many residents, and some did not have time to find another policy.
However, in this case, the wife explained that the reason they had no insurance was that they were “house-poor.” She was referring to a situation where a significant portion of income is tied up in housing costs — such as mortgage payments, property taxes, maintenance, and utilities — leaving little room in the budget for other expenses or savings.
Living in an upscale area can also come with elevated expenses for everything else from domestic help, expensive cars and clothing, and elaborate children’s activities to keep up appearances.
Often, those with high living costs lower their coverage or skip payments altogether to save money and spend more on “visible” expenses to keep up appearances—leaving them vulnerable after a disaster.
Not having adequate savings makes it harder to rebuild and manage temporary living costs while waiting for insurance claims to be processed, especially with high rents. Survivors resort to high-interest credit cards to cover unexpected expenses. This can lead to a cycle of increased debt, compounding financial stress during an already challenging time.
The U.S. Department of Housing and Urban Development defines a household as cost-burdened if they spend more than 30% of their income on housing. If you feel like some of this applies to you, meet with a Certified Financial Planner to help.
Hire professionals
We often advise our readers not to DIY their finances and instead to work with qualified professionals. This week, I received a letter from my insurance broker in Los Angeles that reinforced why this approach matters.
While the convenience of obtaining insurance online from a large company can be tempting, my broker demonstrated the value of personalized service. He had already assigned staff to assist clients affected by the fire and was offering support and valuable advice far beyond what large insurance companies typically provide.
As some insurers have reduced or eliminated coverage, brokers have stepped in to help their clients find alternatives, including specialty carriers willing to take on higher risks to ensure their clients maintain continuous coverage. Instead of being limited to the products of a single company, brokers can compare policies from a variety of insurers to find the best coverage at the most competitive price.
Basic financial planning practices like simplifying and organizing, budgeting and saving, and reaching out to professionals aren’t just good habits for a new year — they are tools for resilience in life’s most challenging moments.
In addition to preparation, the video of actor Steve Guttenberg directing traffic in the fire zone reminds us that reading about friends, neighbors, and community, sharing resources, and offering support is what will really help everyone get through this. (I think he is still out there today.)
Michelle C. Herting is a certified financial planner, accredited in business valuations, and an accredited estate planner specializing in succession planning and estate, gift, and trust taxes.