19 Smart Ways to Prepare for a Financial Emergency

The 35-day partial government shutdown that kicked off 2019 created a moment of truth for the 800,000 employees and contractors who had to figure out how to cover their bills until their paychecks kicked in again. Many did just fine, thanks to savings and, often, the added safety net of a working spouse. But for others, the sudden interruption in cash flow created a crisis.

The episode was a reminder of how many Americans live paycheck to paycheck. According to the results of a Federal Reserve study released last year, 40% of Americans did not have enough savings to cover a $400 emergency expense. Plus, debt has made a comeback since 2013 and now exceeds the previous peak reached in 2008, driven in part by a rise in student and auto loans. We're handling the payments pretty well, thanks to a strong economy with historically low unemployment. But one day the stock market will cycle into a bear market and the economy will cycle into a recession. That will put pressure on your retirement and other savings, and some unlucky workers will lose their jobs.

If you faced a financial crisis--job loss, a catastrophic illness, divorce--how well would you weather the storm? Use our guide to shock-proof your finances, and keep our strategies for dealing with a crisis in your back pocket, just in case. (Is the wolf already at the door? See What to Do If You Face a Financial Crisis.)

Create a Budget

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Yes, budgeting can be tedious. But with a budget in place, you'll have a picture of your income and expenses in case you need to tighten your purse strings later, and you'll be better equipped to build a bigger savings cushion. To get started, you'll need to track your expenses. Use an online budgeting tool or app that links to your bank, investment, credit card and other accounts and, and offer free trackers plus other handy features. Clarity Money and Mint, for example, provide free credit scores. Personal Capital will run a checkup on your investment portfolio's asset allocation.

If you don't own a home, renters insurance is an inexpensive way to cover your possessions and protect against liability claims if, for example, someone gets hurt in your apartment. It typically costs $150 to $250 per year for $20,000 to $30,000 in contents coverage and $100,000 to $300,000 in liability coverage.

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