Are You Overplanning For A Disaster?
Some people go to extreme lengths in the pursuit of what they believe is preparation to survive whatever may come. While it is all well and good to be ready for whatever life may throw at you, there is a cost to too much preparation. Spending your life and your wealth staving off the theoretical risks of low probability events is not only a paranoid way to live, but an economically poor decision on balance. (For more on how disasters can affect your financial health, check out The Financial Effects Of A Natural Disaster.)

TUTORIAL: Intro To Insurance

Over-Insurance
Insurance is a very necessary thing, but some take it too far. While travel insurance, life insurance for children, or cancer insurance might sound like reasonable ideas for some people, the cost and the "fine print" of these policies often makes them nearly worthless. Some people believe there is security in over-insuring items (or people) well beyond their worth, but this extra insurance is often quite expensive and the policyholder could do better by investing/saving the money to cover such a possibility.

Food Storage and Bunker Mentality
More extreme disaster preparation can take the form of stockpiling large amounts of food, readying a bunker, and practicing survivalist skills like raising their own animals. Stockpiling food is not a bad idea to a point (anyone living in an area prone to tornadoes or hurricanes would be wise to have a week or two of food on hand), but some people devote entire rooms or basements to the practice. Not only does take up valuable space that they are paying for (either through rent or mortgage), but a lot of food can go stale or spoil (including bottled water) before it is ever used.

The amount of money and time wasted gets even worse for those who literally build bunkers. This was not unheard of in the 1950s or 1960s and some still believe they can survive a major disaster by building one. Unfortunately, there has been a lot of fraud in this market (many of the bunkers sold and built could have never withstood nuclear fallout, for instance), and they are very expensive, easily costing thousands of dollars. Along similar lines, learning how to raise animals may be an enjoyable pastime, but it is usually too expensive and too time-consuming to be a practical hedge against disaster for regular people. (With so much uncertainty in the works, many are looking to take advantage of others. To help you identify if you are being taken advantage of, check out 5 Natural Disaster Scams To Watch For.)

Too Much of an Emergency Fund
A less extreme example of over-preparation can be seen in the large emergency cash funds that people will keep - either on hand in the form of actual cash or in a convenient checking or savings account. It is absolutely smart to keep a few months' worth of expenses in easily-accessible accounts, but going overboard comes at a cost. The easier it is to access a pool of money, the less that pool will earn. Consequently, keeping too much cash in demand accounts (as opposed to CDs, bond mutual funds or a regular investment portfolio) will result in under-earning and losing out to inflation. In the long run, holding on to cash actually costs money.

Longer-Term Consequences
Over-preparation doesn't just hurt your immediate bottom line. Every dollar you spend today is a dollar you are not investing for tomorrow. It is smart to spend money today on insurance to protect your belongings and financial future, but over-spending is a money-losing proposition. Every dollar you spend on over-preparation for improbable disaster is a dollar drained from your retirement and savings plan and more than a dollar that you cannot spend in the future. Taken to an extreme, preparing for all manner of disasters today can ensure that you never build much in the way of retirement savings and face an entirely different (and very predictable) disaster when it is time to stop working.

There is also a very significant psychological aspect to disaster over-planning. In some cases, disaster preparation is about trying to ease anxiety and feel some sense of control over the future. That is a recipe for overconfidence. Disasters are random and what happens if someone is completely prepared for the wrong disaster? It is also not especially healthy to spend too much time obsessing over traumatic low-probability events.

Be Prepared, Be Practical
None of this is to say that there is no place for sound and practical disaster preparation. Everyone who can afford to ought to have a few months of expenses in an online savings account, just as they should have proper health insurance, home/apartment insurance and a retirement plan. It is also very smart to take a CPR/first aid class and have bottled water, canned/dried food and batteries on hand.

But there is a huge gulf between having a little extra cash and a couple weeks of food on hand and digging a bunker in the backyard, selling every stock for gold, and learning how to catch, pluck and cook pigeons in the park. Don't let the fear of very unlikely events sway you from living in the real world and preparing for a more likely future of occasional work interruptions, repairs to the house and a long retirement. (For more on insurances you may need, see 5 Types Of Insurance You Can (And Should) Afford.)




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