How Does Climate Change Affect Your Finances?

As the news cycle continues to be dominated by extreme weather events such as storms, heatwaves and flooding, plenty of people are wondering: how can I prepare for the impacts of climate change?

Here’s a quick snapshot of how climate change may affect your finances, as well as three ideas to help mitigate the potential damage to your pocketbook. 

The Financial Impact of Climate Change

A warming planet means more extremes; including higher temperatures which can lead to droughts or wildfires, along with heavier rainstorms which may cause flooding and damage property. These events can directly impact people and communities.

Grappling with hotter summers usually means a higher utility bill, while unexpected weather events can cause property damage to a car, a home, and—in the case of flooding or fire—any number of possessions. Simply living in a certain area deemed high-risk can lead to higher insurance costs, even before disaster strikes. 

Physical health and the associated healthcare costs represent another significant concern when it comes to facing extreme weather. Flooding or wildfire can cause acute physical injuries, while worsened air pollution means an increased risk of asthma, heart disease and lung conditions.

Preventative Steps to Take Right Now

1.    Start an Emergency Fund. Experts recommend maintaining an emergency fund which can cover at least three months of living expenses. If you don’t already have an emergency fund, start one—and if you do have an emergency fund, consider gradually building it up. If a storm damages your car, or you end up with a flooded basement, having a bigger emergency fund will help you get back on your feet faster, and with less debt to pay back later.
 
2.    Cover Insurance Gaps. Not all homeowners insurance covers unusual natural events, which means that if your home is damaged in a hurricane or wildfire, you might not be covered. Comb through your current policy to understand what’s covered and what’s not. If you see any coverage gaps, consider adding a separate rider or getting an additional policy to ensure your home and your finances are protected.

3.    Climate-proof Your Home. There are a number of investments you can make in your home, to make it more weather resistant and climate efficient. Closing foundation cracks or investing in a sump pump can help prevent flood damage, while improved insulation and energy-efficient windows will help to lower utility bills in high-heat summers. Storm shutters and metal roofing are recommended for hurricane-prone areas.