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| The Basics | Disaster preparedness for your finances
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Pull together backups of your key personal and financial information and place them either online or in the hands of a trusted friend. You may need them to rebuild your life someday.
By Liz Pulliam Weston
The idea of storing sensitive personal and financial information on the Web may give you the willies. But not having a remote, off-site backup of your important documents is what should really scare you.
Disaster preparedness expert Michael Emmerman used to believe that it was enough to make copies of essential documents and keep a set at your office. That was before a World Trade Center tower fell nearly on top of him while he was helping to coordinate the emergency response at its base.
The incredible devastation of that day -- and the troubles faced by people and businesses that didnt have adequate remote backups -- convinced Emmerman that we need to do more.
Now I say, make copies of everything you need to operate your financial life and send them to someone you trust halfway across the country, said Emmerman, who is a Neuberger Berman managing director as well as a government liaison officer with the American Red Cross. Send the documents, he said, as far away as you feel comfortable.
Imagine worst-case scenarios
Its not just terrorist attacks that can cause widespread destruction. Floods, hurricanes and earthquakes can put entire regions out of commission. Even more commonplace disasters, such as house fires, can be devastating if you dont have copies of your documents and data in more than one place.
If you need any more motivation, just imagine your loved ones trying to file an insurance claim, or your taxes, if your computer, your home and all your documents have been obliterated.
Taking the time to imagine worst-case scenarios and prepare for them is not being paranoid, Emmerman said. Thats being prepared.
Create a red file
Emmerman advises creating what he calls a red file that can be sealed in an envelope and mailed to a relative, friend or professional fiduciary, such as a trust officer or attorney. Include in the file copies of everything you -- or your heirs -- would need to rebuild your financial life, such as:
- Birth, death and marriage certificates
- Adoption papers
- Identification, including drivers license and passport
- Recent bank and brokerage statements
- House deeds
- Mortgage and home equity notes
- Car title, lease or loan information
- Insurance policies and agent contact numbers
- Credit and debit cards, both front and back
- A household inventory
- Tax returns for the past three years
- The location of wills, trusts and powers of attorney
- Names and contact numbers for executors, trustees and guardians
- A list of your financial advisers and their contact information
- A list of user IDs and passwords for online financial accounts
These can be photocopies, or you can scan the documents into your computer and burn them onto a disk. Organizers like The Beneficiary Book by Martin Kuritz (see link at left) can provide a template for the kind of information you should gather.
Put this envelope of documents and computer disks into a larger envelope and mail or overnight the package to the person youve entrusted to hold it. Instruct the recipient to leave the inner envelope sealed and to send it back, on request, if a disaster should wipe out your originals.
This way youre OK if everything around you is destroyed, Emmerman said. If the destruction is so huge that you and your environment have been destroyed, someone can use these documents to reconstruct your (financial) life.
The online alternative
The Web can serve as a supplement to, or even replacement for, this trusted friend. Scanned documents can be attached to e-mails and stored in your e-mail account, or you can use secure online backup services such as iBackup or Xdrive (see links at left).
These Internet storage services havent been a huge hit with consumers, said Chris Musto, analyst for Web site rating service Gomez Inc., because most personal computers have such enormous hard drives that few people see the need for additional storage.
But the real advantage of files that are stored on the Internet is easy access. You can get to your data from wherever you are in the world, and its simpler to update than physical copies stored with a friend. And frequent updates are a key to making your emergency files work.
You might, for example, send a physical red file to a friend, a file that you update annually or after a major life change. In the meantime, you could back up your PDA and your personal-finance software every few days online, as well as burn a disk every month or so that you either send to your friend or store offsite.
While youre on your preparation patrol, consider other areas of your life that might need remote backups:
Your financial institutions. Most banks and brokerages have remote backup systems to ensure youll have access to your money in a disaster. Check with yours to make sure. If your institution has only one server and its in your backyard, Emmerman said, consider opening an account with another bank so youll have ready access to cash in an emergency. (This is in addition to keeping a few hundred dollars in cash at home.)
Your executor, trustee and guardians. Estate-planning experts usually recommend naming people who are close to you geographically to handle these chores. But a widespread disaster could affect them, as well. Consider naming backups in another state or region, just in case.
Your attorney-in-fact. Likewise, estate planners recommend naming someone to make financial and health decisions for you, using powers of attorney, if youre incapacitated. (For more information, read 3 legal papers you shouldnt live without.) Typically, you would name a spouse or a nearby friend. Consider a more remote friend or relative to serve if your first choice no longer is available.
All this is stuff most people dont like to think about, let alone plan for. But Emmerman, who leads seminars on disaster preparedness for Neuberger Berman clients, is finding his audiences are more receptive lately.
People are listening now because of the terrorist issue. They werent listening before, Emmerman said. So now that youre listening, go do this.
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