Top 5 things you should do to prepare financially for the impact of climate change

a town flooded with water

It seems like every year our weather is getting more extreme. Last week, the Pacific Northwest experienced record-breaking 110 degree weather. Last winter, Texas experienced a major snow storm that caused an electric grid failure and widespread power outage for around 10 million people over several freezing days.

Worldwide, heatwaves and snowstorms have become more frequent. The increased evaporation of water is like fuel for storms, exacerbating extreme weather events, such as hurricanes. Rising sea levels make storm surges capable of much greater damage. In more arid regions, droughts and wildfires are intensifying.

Climate change does not just impact our lives, it could also hurt us financially in multiple ways.

  • Damage to physical assets – Wildfires and hurricanes can physically damage our homes, offices and properties.
  • Higher prices we pay – Droughts and extreme weather can negatively impact our water supplies, agricultural output, and transportation network raising our prices for food, energy and materials.
  • Increased health care costs – The disruption from extreme weather can also cause or aggravate health issues including increased respiratory and cardiovascular diseases, injuries, mental disorder, and premature death.

The frequency and severity of climate-related catastrophes seem likely to increase over time. Therefore, it is imperative to prepare mentally and financially before these events happen.

Here are the top 5 things you should do to prepare financially for the impact of climate change:

  1. Build an emergency fund – Build an emergency cash fund reserved for use during unexpected events or major life changes. Ideally, this fund should be at least 3-6 months of your living expenses and be kept in a high-yield saving account.
money in an emergency jar

2. Evaluate climate risks in your property – While it is impossible to completely eliminate each real estate/property from the impact of climate change, we should try to manage and mitigate the risks using property insurance or portfolio diversification. Before you make your real estate purchase, you should evaluate the property risks of natural disasters including hurricane, flood, wildfire, and drought. You should also consider the additional retrofit, operations and insurance costs to address and mitigate those risks.

four cartoons show forest fires, eruption, tsunami and flood

3. Use insurance to protect your downside – Make sure you have robust homeowners, health and life insurance coverage that will reduce your financial losses in case of a disaster event.  If possible, spend some time to understand your homeowners insurance coverage and shop around for your insurance policies. You should use insurance to cover major losses, not minor ones. Therefore, you should always raise your insurance deductible for lower monthly payments.

cartoon man and woman handling money fire car airplane and medical record around them

4. Reduce your carbon footprint – We should all do our part to slow down/reverse climate change through our own actions and investments. In addition to shifting towards renewable energy, you should first try to use less energy. If possible, reduce your travel needs by adopting technology and video conferencing tools like Zoom. Curb unnecessary energy consumption by using energy efficient light bulbs/appliances and by weatherizing your home against heat/cold. If feasible, adopt a vegan diet as raising animals for meat consumes a lot of water and energy resources.  If you live in an urban area, go car-free by using public transportation or bikes. These simple changes will not only reduce your carbon footprint, they will also cut your utility bills and monthly expenses.

carbon footprint of different type of industries

5. Vote with your money to build an earth-friendly investment portfolio –  In addition to our purchases, we should also invest in businesses that are environmentally friendly or help the world mitigate climate change problems. There are many companies that manufacture renewable energy generation/storage equipment, energy-efficient appliances/products, meatless protein, software collaboration tools that reduce our need for physical travel and face-to-face meetings.

hands holding a mini tree growing on top of a pile of gold coins

Bottom Line

We need to be proactive and prepare mentally/financially for more climate change related events in the future. None of us should feel like a deer caught in the headlights when a natural disaster strikes.

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