- Always have some emergency savings. We suggest setting aside enough to cover at least 3 to 6 months of essential expenses.
- Pay down high-interest debt or avoid it altogether. It can be a real financial burden.
- Insurance matters. Think through your personal set of circumstances and make sure you have the insurance you need.
It's easy to feel like you have your financial situation all figured out until life throws a curveball. This could be losing your job, a family member becoming sick, or even a global pandemic.
It's hard to predict what the next curveball will be, or when it might come your way. But it is possible to prepare financially so that when the unexpected does happen you have a plan. We have a few tips to help you prepare for those future curveballs.
1. Always have some emergency savings
We suggest setting aside enough in cash to cover at least 3 to 6 months of essential expenses. If you're single, you have little or no debt, and have friends or family who could help you out in a pinch, you might be comfortable with 3 months of savings. However, if you have a spouse, kids, and a mortgage, you might be better off with 6 months of savings or even more. Consider keeping that money in easily accessible accounts, so you could tap it quickly if you ever need to.
That can sound like a lot, but try automating a portion of every paycheck into this account to help you build up your savings over time. To learn more about establishing an emergency fund, read Viewpoints at Fidelity.com: Preparing for emergencies.
2. Be cautious with high-interest debt
High-interest debt can be a real financial burden. It grows and compounds and once you're in a hole, it's easy to feel like you can't crawl out. Avoid this altogether if you can. If you have debt with an interest rate of 15% or greater, paying it off should generally be one of your top financial priorities. But depending on your financial situation, you might even prioritize paying down any debt with an interest rate of 6% or greater.
Reducing your debt load can help you free up money for financial goals—from retirement to education to buying a house. It also gives you more financial flexibility and resilience, which can be helpful if something unexpected like a job loss comes up. To learn more about the importance of paying off high-interest debt, read Viewpoints at Fidelity.com: 2 strategies for paying down debt.
3. Insurance matters
Insurance can be your parachute if you're ever facing a potential financial tailspin. Depending on your personal situation, you might consider a variety of types of policies, including health, disability, life, car, small business, long-term care, and more. Each plan varies, and it is important to research and ask lots of questions to understand exactly what policies do and do not cover.
Think through your personal set of circumstances and make sure you have the insurance you need—including both the right types of policies and the right levels of coverage. Although it can be tempting to skimp on insurance as a way of reducing your monthly expenses, remember that doing so can be risky. After all, the whole point of curveballs is that they are unexpected.