How To Protect Your Money From Climate Change and Weather Disasters

Insurance, Savings, and Planning Ahead May Help You Manage the Costs

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Climate change is an all-encompassing term used to explain long-term changes in weather patterns and temperatures around the world. This crisis leads to conditions ripe for severe weather and climate events like hurricanes, wildfires, and extreme winter storms. Climate change and weather disasters don’t just add inconveniences and potential danger to our lives but they can also impact our bank accounts.

Climate change and weather disasters can be costly events, especially if you’re directly affected. Indirectly, businesses in your investment portfolio may also be impacted by climate change, for better or worse. In addition to repairs and insurance deductibles, weather disasters may lead to time in hotels, work disruptions, and other unexpected costs. 

Here’s a look at how to protect your money from climate change and weather disasters, wherever you live in the U.S.

The Economic Impact of Climate Change

Climate scientists and economists have long warned of the potential impacts of climate change, and we’re starting to see the results manifest from coast to coast. These are not one-off events. You may have seen news stories about California wildfires, Gulf and East Coast hurricanes, and winter storms that brought the bitter cold from the Canadian border deep into the heart of Texas, and they all cost the U.S. a lot of money.

Between 1980 and 2020, the U.S. sustained 285 extreme weather events, which cost a total of $1.86 trillion. One 2019 study even found that the U.S. will see increasing economic losses from higher temperatures. Low-income areas are expected to be the hardest hit, but nearly everyone will feel the impact of this type of climate change on their wallet in some form.

Another 2020 study published in Nature Communications by a group of academic researchers found that the U.S. economy could suffer trillions of dollars in economic losses even with the slightest climate variability.

It's not just the one-time costs of major storms, either—climate change could lead to increased expenses on things like gas, groceries, shipping, and other needs throughout the year.

Increase Your Cash Savings

The first step you should take to protect yourself and your household from climate change losses is to save up an emergency fund. Good savings habits allow your family to stay housed while covering repairs after major events. They can also help ease the strain of paycheck-to-paycheck living.

Many experts suggest keeping at least three to six months of expenses saved in an emergency fund to cover unexpected financial emergencies or loss of income. 

Households that want to be even more resilient should consider doubling that to at least six to 12 months of expenses. And if you keep that cash in a high-yield savings account, you may earn a higher interest rate on that money.

Consider Where You Live

Some people grow up dreaming of leaving their hometown while others could never imagine uprooting their life. Depending on where you live, you may want to consider the risks of your geography regarding climate change and potential financial losses.

David Lee, with the David Lee Group of Keller Williams in Yorba Linda, California, told The Balance that you should look at a natural hazard report when buying a home, something common to buyers in California. 

“There’s a lot of natural disaster and hazard companies,” Lee said in a phone interview. “For under $100, you can get a detailed report for your neighborhood and where you live.”

It may also be wise to check to see if your area is considered a flood zone. You can use FEMA’s Flood Map Service Center to look up an address or town and learn if it’s in a high risk zone. If so, flood insurance may help protect your property (more on that below).

Protect Your Property

Homeowners should take steps to maintain their physical property and add any necessary insurance. Renters should protect their possessions with a quality renters policy, while homeowners should choose a more robust homeowners insurance policy.

Take care not to underinsure your property, as it could leave you short on funds to rebuild from a total loss.

Most homeowner’s policies don’t cover damage from hurricanes, floods, or earthquakes. If you live in an area prone to any of these events, it’s wise to consider additional insurance to protect you from catastrophic losses. Insurance and maintenance are relatively low costs that could save you thousands of dollars down the road.

Upskill for the Future

After seeing wildfires engulf the West Coast, as well as abnormally cold weather in southern states, you may want to consider learning new skills to help navigate any adverse effects that these factors may have on your job and lifestyle.

Preparing for a job that you can do remotely may protect your paycheck during major weather events. And learning skills to join growing industries around renewable energy and sustainable living will likely come with more benefits than dying industries like coal and other fossil fuels. 

This type of upskilling may not only help protect your job and income, it is also a wonderful investment in your career and lifestyle that may pay off for decades to come.

If you want to go a step further, consider learning how to grow some of your own sustainable produce, provide and store your own electricity with a solar or battery system, and treat your home like a homestead that can survive off the grid, even if you live in the middle of town.

Invest in Disaster-Resilient Markets

Finally, take a look at your portfolio. Some industries, like oil and gas, could be positioned to take more of the brunt from economic shifts due to climate change. For example, companies that build solar panels and wind turbines may perform better as humanity works to reduce its environmental impact. These energy sectors may be more cost-efficient and sustainable.

You can invest sustainably based on factors that impact the environment and other social issues.

An industry-by-industry analysis may open your eyes to new investing opportunities, as well risks that you’d rather avoid. Consider companies that meet environmental, social, and governance (ESG) criteria, funds that focus on the environment, and even green bonds that fund environmentally friendly projects. Building a resilient, long-term portfolio is important for retirement and your other financial goals. Taking the time to optimize your portfolio for climate change could lead to the best results.

The Bottom Line

Wildfires, hurricanes, winter storms, and more can all cause extreme damage, including power outages, costly repairs or relocations, or job and income loss. Climate change isn’t a far-off threat—it’s here and likely something the U.S. will have to grapple with for years to come.

By taking the time to prepare your finances, insure your home, improve your skills, and update your investment portfolio today, you may be in a better position to navigate new climate challenges in the future.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.