Our hearts and prayers go out to all of those whose lives have been impacted by Katrina. What lessons can we learn from this disaster?
The tendency is to think is, “It can’t happen to me.” The truth is this type of event can happen anywhere. It could be a tidal wave, an earthquake, a hurricane, tornado, flood, volcanic eruption, blizzard, or even a nuclear terrorist attack. For those who live through this type of event, the trauma is so great that it may be months or years before they will sleep normally. The emotional scars will last the rest of their lives. In terms of Katrina, no one knows yet how many people will be taken ill with bacteriological and mosquito-borne illnesses. It will take years to rebuild what has been lost and there’s no guarantee when the next cataclysmic act of nature or terrorist event could take it all away again.
The magnitude of Katrina is so great that it will impact you in ways you may not expect. Barges cannot carry food from the Midwest down to the gulf. This means some crops will be lost and food prices will be higher. Look for wheat prices to soar. Due to the damage of the shipping lanes that flow through New Orleans, other goods such as clothing will increase because of the inability to ship cotton out of the Gulf. Heating oil, electricity and natural gas will all increase in price. So will the cost of everything that reaches us by truck, plane or train.
The question is how prepared are you for a catastrophic personal or business disaster? What would happen if your area experienced a disaster of this magnitude? Do you have a safe place to go and plans to get there? Do you have adequate insurance? Do you have enough money in the bank to survive a year with no income? Do you have contingency plans to meet a catastrophic illness or an event where you are seriously injured? Do you have enough food and water that you could live one to two weeks with no outside help? Are you prepared for two to five years of a down market where there are few sales? If you haven’t addressed these issues, make time now to formulate how you would cope. Put away a supply of food and water, just in case. Rotate it every six months, but take steps now to be prepared.
In terms of preparing financially, look at where you can shave expenses. Shop at discount stores and buy in bulk. Do you need 500 television channels, especially if you’re working all the time? Would ordering the movies you watch on pay-per-view be less expensive than paying for your cable or satellite subscription? Do you eat out several times a week? How much could you save by cutting back your evenings out by 25 percent to 50 percent? Did you know that ordering a $15 pizza once per week costs you $7,800 in after-tax dollars over 10 years? Assuming you are in the 32 percent tax bracket, that’s $11,470 before taxes. Your daily trip to Starbuck’s for your $3 latte costs you $750 per year, $7,500 over 10 years, and represents $11,030 in before-tax income.
One of the most important ways to protect yourself is to become “bullet proof.” What this means is that your house and car are paid for and that you have no credit-card debt. It also means that your retirement is fully funded. To put yourself on the road to becoming bullet proof, instead of taking an interest-only home loan, go for a 15- or 20-year loan. On a $200,000 loan, you can save approximately $100,000 in interest. If you don’t want to refinance, simply increase your mortgage payment by 10 percent per month. That small increase will allow you to pay off your loan 8 to 10 years earlier. Part of what each of us is being called on to do is to be better stewards of what we have. Paying attention to the pennies and dimes will yield big dollars over time.
No matter how much or how little you have, almost all of us can trim back personal expenses. Many people in the real estate industry are blessed with tremendous abundance. Right now is the time for each of us to contribute to those who are experiencing such terrible need. Whether you give through the Red Cross, Salvation Army or other charitable organization, when we give to others it always comes back to us in ways we never expect. Give up a few luxuries and treats for the next few months to help those who are struggling to cope with the most horrific natural disaster in U.S. history.
Bernice Ross, co-owner of Realestatecoach.com, has written a new book, “Waging War on Real Estate’s Discounters,” available online. She can be reached at bernice@realestatecoach.com.
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