Oran Hall | Nature can change the course of your financial plan

The best-laid financial plan can be easily upended by nature – a force over which man has very little control. Its power to wreck a plan lies in the uncertainty and unpredictability that are inherent to it, but the risks it poses can be mitigated with proper planning and the adequate funding of risk-management measures.

Natural events like storms, hurricanes, earthquakes, floods, and droughts often disrupt the earning of income, cause scarcities leading to higher prices, cause damage to assets and cause injuries, and require the spending of significant sums to meet health-related expenses.

How people fare depends on their approach to the management of risk. Risk management includes all the efforts to conserve assets by controlling the uncertainty of financing loss, a concept that applies to all classes of insurance, including life, disability, health, homeowners, and business. People may manage risk by avoiding it, reducing it (self-insurance), retaining it, or transferring it, but many choose to transfer it through insurance.

There are cases in which nature gets much support from human beings, floods, for example, aided in some cases by careless dumping, which impedes the natural flow of water. Fires, some of which start naturally, also come about with our help. Nonetheless, the financial costs of these occurrences are met to various degrees if there is insurance coverage.

Heat is natural though it is becoming more and more evident that human actions are contributing to the increased warming of our environment. Efforts to alleviate the discomfort of the warmer conditions, whether by air conditioning or fans, cost. The suppliers of electricity and fans are the primary beneficiaries while consumers feel fire in their budgets as the cost rises.

Droughts affect the earning and spending of income. Right now, farmers are sounding very nervous because the drought conditions are expected to hurt their crops. At the same time, they are staring at higher costs for water, which many must buy. Higher costs and lower output pose a serious threat to their income, which they try to protect by increasing their prices to the consumer.

Consequently, the consumer’s pocket feels more pressure from these higher prices, and balancing the budget becomes a challenge.

As we move from insufficient water to too much, another problem emerges. Floods can do great harm – and they actually do. They destroy crops and thus wash away the income of farmers. They also do serious damage to farm land, farm structures, residential structures, and business structures, forcing their owners to incur great costs to restore them if they are not insured at all or not insured adequately.

Then there are those in tourism, for example, who earn a living from activities like rafting, who can be affected adversely if the conditions are not right.

Earthquakes give no warning. They can inflict great harm – and they do. Not only do they inflict great damage to buildings and other property, they can cause serious disruptions to business activity, thus interrupting the flow of income to many people.

Storms and hurricanes do come. We have been very fortunate that they have not been frequent, but they can be devastating. They batter buildings, damage all kinds of property with the rain and wind that form the package, and tend to disrupt economic activity such that many people tend not to be able to earn an income.

The acts of nature sometimes cause injury, which may make it necessary to incur serious medical expenses and lead to time away from work. Where there is health insurance, there is some easing of the burden – but there is still some cost that the affected person bears.

Owners of businesses may experience serious losses and see their profits decline, and even listed companies can conceivably be negatively affected.

Natural events can – and do – cause serious disruptions to people’s lives and their financial plan. Adequate insurance can make recovery easier and less stressful.

The negative impacts can be reduced with proactive action. Budgets should make provision for contingencies. There should be an emergency fund, steps should be taken to ascertain the integrity of buildings followed by corrective action where necessary, and an up-to-date record of all assets should be maintained, among other actions.

Although the actions of nature may disturb your best-laid plans and set back your time table to achieve your goals, whatever happens does not have to be fatal. With time, insurance, collective effort, adequate liquid reserves, the sale of assets, and realistic changes to the plan, including different strategies, recovery is possible.

Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel.finviser.jm@gmail.com