If life throws you a curveball, an emergency fund and insurance coverage can help you preserve your retirement savings and avoid taking on debt.
Start an emergency fund
Starting an emergency savings fund now can have a big payoff down the road—it can help you get by in case of an unexpected repair or tax bill, for example.
A good rule of thumb is to save enough money to cover at least six months of living expenses. These tips can help you get there:
- Determine your essential and non-essential monthly expenses, and limit what you spend on the non-essentials.
- Open a safe, liquid account, like an FDIC-insured savings or a money market account, and keep it separate from your everyday savings so there's less temptation to "borrow" from it.
- Set an attainable goal—maybe $1,000 to start—and then devote a percentage of every paycheck to it. Consider setting up automatic transfers into your emergency fund account.
- Put aside a small amount each month until you reach your goal, and then set aside as much as you can monthly until you've got enough to cover up to half a year's worth of essentials.
If you must tap into your emergency fund, build your savings back as quickly as possible.
HSAs offer triple-tax advantages
If you're enrolled in a high deductible health plan, a Health Savings Account (HSA) offers three key tax benefits:
- HSA contributions are made pre-tax
- Earnings from interest from investments in your HSA grow tax-free
- Withdrawals for qualified medical expenses are federal tax-free and may be state tax-free
Protect your family with health, disability and life insurance
Health: Sign up for health insurance through your workplace, if available, because it will most likely cost less than buying it yourself. If you are enrolled in a high-deductible health care plan, you may be eligible to open and fund a Health Savings Account (HSA), which lets you use tax-free savings to cover qualified medical expenses.
Disability: Many employers offer group disability insurance, but it may not cover enough lost income during a longer-term disability, so check if any supplemental policies are offered. If you can't get sufficient coverage through work, consider buying an individual policy.
Life: Life insurance can help protect the financial future of your beneficiaries. Your employer may offer life insurance—most likely term life, which provides protection for a set period of time. Other types, such as whole and universal life, can provide lifetime coverage. What's appropriate for you depends on many factors, so do some research before selecting a policy.
Insurance to protect your home and belongings
Homeowners and renters insurance: Your policy should cover your entire home and its contents from fire or theft. Also, make sure you're covered for personal liability if someone is injured in or around your home.
Auto insurance: Along with collision coverage, it's a good idea to insure against any liability involving your car, because a lawsuit stemming from a car accident could be financially devastating.
The time to review
your home or renters
policy is before you
have a loss.