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3 tips for when life throws a curveball

You never know what life will throw your way. Here's how to prepare financially.

Key takeaways

  • 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 loss of a job, a family member's illness, 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 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 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.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917

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