Making a budget after a major disaster

Major disasters can upend the best made plans, as Hurricane Melissa has shown us. Although recovery can be long and challenging, it is achievable with patience and effective strategies supported by a realistic budget.

It is often challenging in such situations to craft an effective budget because of the serious falloff of income from employment and business, as well as from investments, not to mention the diversion of funds normally used to earn income to support important spending needs. Lower income means less money to spend, save and invest, so these losses should be assessed.

Damage to important assets, the residential property, for example, can eat deeply into a family’s or individual’s pool of funds if there is no or too little insurance protection. Although the programmes the Government and its agencies have put in place to give relief to the victims of the hurricane offer some cushion, there is generally still a gap to be filled.

Given the squeeze on the income side, it is critical to prioritise the most essential items on the spending side, for example, housing, food, utilities, transportation, debt servicing, and savings and investment. It is also prudent to create room for an emergency fund, perhaps not at the same level as before the natural disaster. All of these steps are necessary to restore stability, after which there can be some loosening.

Taking advantage of government-led disaster assistance programmes focused on shelter and cash assistance in the current situation, even if small, can provide some relief, effectively providing some form of income in cash or kind. Some of the programmes are the Shelter Recovery Programme, administered by the Ministry of Labour and Social Security for home reconstruction; the National Housing Trust Hurricane Relief Grant for contributors, former contributors, and pensioners with damaged property, and relief loan payment moratoria; and the Programme of Advancement Through Health and Education (PATH) Grant for vulnerable families affected by the hurricane.

In the cases of people severely affected by Melissa, it is reasonable to see meaningful shifts in how the income of the family is allocated, given the loss of income and how it is earned in some instances. New priorities also make it necessary to make shifts in spending, for example, the imperatives of repairing or replacing homes, replacing furniture and appliances, and incurring higher expenses for healthcare, due to higher levels of stress, inevitably makes it necessary to shift resources from other parts of the budget.

A major reason the yawning gaps in the budget shrink is the generosity of family, friends, and charitable organisations. Such gifts are really income, as they reduce or eliminate the need to source money to fund spending. It is not always possible to know the value of such gifts, nor to know when they will be received. Let them come as a surprise rather than build them into the budget. In any event, these will not likely be available for future budget periods.

It is important to bear in mind that there has to be a recovery phase before there is full restoration, so it is important to use carefully what is on hand and to manage carefully the use of utilities, for example, as there is a direct relationship between usage and cost. Such expenses, though necessary, are variable. Even food, as necessary as it is, is a variable expense. It is a good idea to set a maximum usage of utilities, although it does not necessarily mean that cost will remain the same.

Discretionary expenses, entertainment, for example, though important, can take a cut until stability is restored.

Not so for fixed expenses. Insurance premiums, school fees, and loan repayments, for example, are pre-determined. How they bear on the budget can vary depending on whether arrangements can be made to re-negotiate payments; for example, making them quarterly rather than annually. While some arrangements may come with additional cost, making more but smaller payments can ease pressure on the budget.

At the same time, loan moratoria have the effect of easing pressure on the budget in the short term, but may pile on more in later years. New loans make it possible to repair and replace damaged and destroyed assets, but may cause serious pressure on the budget.

As much as a serious natural disaster brings about a serious overturning of the budget, every effort should be made to save even a small sum to the extent that it is possible, then increasing the amount as stability is established.

A post-disaster budget is still a budget, though in a topsy-turvy world. What makes it different is the reordering of priorities and lower income – perhaps. It is still necessary to be clear about what portion of income, even if that has changed, is to be spent on what; and regular monitoring is not an option, but an imperative.

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