Life has a funny way of throwing us curveballs when we least expect it. While no one can predict what might happen, you can prepare for potential emergencies.

The more prepared you are for future curveballs, the easier it is to get through them without too much stress. Preparing financially will help give you more time and energy to focus on other issues that a crisis may cause.

1. Start an Emergency Fund

Everyone needs an emergency fund no matter how much money they make or have. An emergency fund is a liquid account kept separate from any other funds which help protect you in a financial crisis.

The average emergency fund has three to six months of expenses in it. The more you can save, the better. If you haven’t started an emergency fund, consider starting with $1,000. This should get you through a minor emergency; however, aim to save at least three to six months of expenses in the future.

2. Create a Backup Budget

Your daily budget may not be appropriate in a financial crisis. If you lose your job, fall ill, or suffer another major problem, you might have to limit your spending to the basic needs until you recover.

Create a necessities budget for a possible financial crisis, allowing you to act quickly should you face a significant emergency. A necessities budget means you pay only for your necessities, such as:

  • Shelter
  • Transportation
  • Food
  • Healthcare

Think only of your basic needs when creating this budget. There will be time for unnecessary expenses down the road.

3. Get out of Debt

Consumer debt can hurt your chances of recovering from a financial emergency. If you carry credit card debt with high-interest rates, try paying them off as quickly as possible. Then, when an emergency occurs, you won’t have to worry about making your minimum payments or accruing more interest.

It might feel overwhelming to get out of debt initially, but the debt snowball method can make it more manageable. Here’s how it works.

First, organize your credit card balances from smallest to largest. Ignore the interest rates; for now, only focus on the balances. Include the minimum payment for each card. Then determine how much extra money you have in your budget to fuel your debt payoff efforts and add that amount to the minimum payment of your first credit card in line (smallest balance).

Keep doing this until you pay the first balance off in full. Next, take the total payment made to your first card (minimum payment plus extra money) and add it to the minimum payment on the second credit card.

As you continue, your payment will continue to increase (snowball) until you’ve paid off all debt.

4. Buy Proper Insurance

Insurance policies are there for when bad things happen. It’s not fun to think about, but when planned for, insurance can help make bad situations easier to manage.

Think of all the worst-case scenarios, and then consider what type of insurance would cover it. Think about things that could happen in your area, such as earthquakes, floods, and hurricanes. Is theft a common issue in your area? Do you have proper health insurance?

Beyond health insurance, think about long-term disability and life insurance. If you suffered a tragedy, would your family be okay financially, or would an insurance policy provide the necessary funds?

Don’t make yourself insurance poor, but also ensure you have the coverage should disaster strike. For example, if you lost your entire home to earthquake damage, would you have coverage to rebuild it?

5. Create an Emergency Binder

When disaster strikes, it’s hard to think straight and know what to do. So rather than putting yourself in that situation, create an emergency binder so you can act quickly.

In the binder, have information about insurance policies, including contact information. Also include the name and phone numbers of all lenders and creditors, so you can contact them to discuss your situation. Having everything together can help you stay organized and less stressed.

Another thing to add to the binder is a list of important people to call should something happen. For example, if you have kids and something happens to you, they need a way to contact someone to get help. The binder can also help anyone who comes in to help.

While not the most glamorous topic, financial preparedness is the key to successfully managing your finances. Life happens; prepare yourself so that you’ll be prepared financially and mentally to handle it when the time comes.