Michelle Singletary
Thursday, September 8, 2005
11:25 AM
Are you prepared for a disaster? Do you have your financial papers in order, and in a safe place? If a catastrophe strikes, will you be able to piece your life back together?
If you've been watching the horrific stories of people trying to find food and shelter in the aftermath of Hurricane Katrina, then you need to read my column today, because this calamity is a wake-up call for all of us -- me included.
If we heed the call, then perhaps some good can come of this tragedy if it motivates us to do some disaster planning. (For more advice and discussion, join me and my guest, certified financial planner Arthur Stein, at noon ET today for a live online Q&A session. Stein is vice president of First Financial Group in Bethesda. Md.)
If you're not sure what steps you should take to prepare, check out the tips from the Financial Planning Association in today's column. For example, the association recommends that you have an "evacuation box" that is fireproof, lockable and light enough to carry in an emergency. Keep all your important financial documents in this box.
Unfortunately, many of Katrina's victims will have trouble piecing their lives together because they lack key documents.
"As tens of thousands of families and businesses are struggling to rebuild, many are without the paper and perhaps even electronic records and resources fundamental to the working of American life and commerce," reports Albert Crenshaw (Sept. 2, "Rebuilding, Without Financial Records"). "How do you get a credit card bill, let alone pay it, when your house is gone, your very address is gone, your bank's offices are gone?"
Government agencies including the Internal Revenue Service, mortgage companies such as Fannie Mae and Freddie Mac, and even some credit-card issuers are offering relief, Crenshaw reports. The IRS has set up a task force to try to work out other forms of assistance that might benefit taxpayers in the afflicted areas. And the U.S. Postal Service has set up a "New Orleans" post office at the Astrodome in Houston, where many hurricane refugees have been taken.
If The Storm Comes
Do you have enough insurance coverage in the event of a natural disaster? Specifically, do you have flood insurance?
Many homeowners think their basic insurance policy covers flooding. It doesn't. Even if you're not in a high flood-risk area, you may still need protection. Twenty-five percent of all flood insurance claims are filed in low- to moderate-risk areas, according to the National Flood Insurance Program.
As Crenshaw says in his column ("'Under-Bought' Flood Insurance Proves Its Value," Sept. 4) flood insurance can be immensely valuable. NFIP policies will pay up to $250,000 for residential buildings plus another $100,000 for contents that are lost. It will also pay up to $500,000 for nonresidential buildings and $500,000 for their contents.
And flood insurance isn't that expensive. The premiums average around $400 a year. Crenshaw quotes J. Robert Hunter, who once headed the program as federal insurance commissioner, as saying federal flood insurance "is a greatly under-bought product."
For more information about flood insurance go to www.floodsmart.gov.
Give Cautiously
With countless people now in need of help, it's heartwarming to see so many others coming forth to donate money.
But before you write a check or charge to your credit card, it's important that you know to whom you are giving your hard-earned dollars. The last thing you want is for your donation to end up with a con artist.
Earlier this year, after the tsunami catastrophe, I wrote a column ("Be Generous, But Be Careful," Jan. 9) listing several tips that givers should heed before extending aid to disaster victims.
To be safe, check this Washington Post listing of reputable nonprofits collecting donations for Katrina victims.
Penny-Pinching Practical Tips
With gas prices so high, we could all use some penny pinching tips. So here again are some leftover entries from this year's Color of Money Penny Pincher of the Year Contest:
Sandra Kraft of Oklahoma City wrote: "I buy packages of eight to 10 shower caps at the dollar stores for $1 and use them to cover salads, cookies, hors d'oeuvres, etc. They will stretch to cover the largest salad bowls and are cheaper than buying regular food covers in the stores."
Jennifer Irwin of San Francisco says, "A more painless (albeit trivial) way to pinch pennies is to save the wax paper and foil wrappers from butter and margarine sticks and use them to grease baking pans. I fold the wrappers in quarters and keep them next to my butter dish in the refrigerator. I know this sounds silly, but it really saves time and aggravation."
Ernestine Green of Buffalo wrote: "There are always paper towels in the kitchen for washing hands before cooking. After washing my hands, I place the paper towels in a sandwich bag. The towels are then used for wiping up the floor, spills on counters etc. I think of it as recycling."
Financial Fact
Myth: Christy Costello of Atlanta asked, "I heard recently that when the new bankruptcy law goes into effect in October, our credit card minimum payments will double. I admit to being farther in credit card debt than I would like but far enough removed from bankruptcy, so I have not followed this story as closely as perhaps I should have. Is there any truth to this rumor?"
Financial Fact: There is some truth in that rumor. Credit card companies have been raising the minimum payment consumers have to pay on their balances.
For years the minimum payment on credit balances has been about 2 percent. That is changing, but not as a result of the new bankruptcy law that will take effect Oct. 17.
Instead, the hike in credit card minimums is the result of action from the Office of the Comptroller of the Currency, which has become concerned that people's minimum payments failed to cover the costs of fees and interest and thus kept them deep in debt. The OCC was so concerned about what it called unfair or deceptive credit card offers that it issued an advisory letter warning national banks about certain credit card marketing and account-management practices.
Your minimum payment will depend on your credit card company, although some people have seen it rise to as much as 4 percent.
The new bankruptcy law requires card companies to print a warning to customers that paying only the minimum increases the interest and time it takes for them to pay off their debt.
Are you wondering if what a so-called financial expert told you is true? Do you have a co-worker who thinks he knows everything about personal finance and you want to confirm his advice? Send me any "Money Myths" that you want help dispelling. Drop me a line at colorofmoney@washpost.com. Put "Money Myth" in the subject line.
You are welcome to e-mail comments and questions to singletarym@washpost.com. They may be used in a future column or newsletter with the writer's name unless otherwise requested.