Three tips for when life throws you a surprise

It's easy to feel like you have your financial situation all figured out until life throws you a surprise. This could be losing your job, a family member becoming sick, or even a global pandemic. It's hard to predict what the next surprise 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 surprises. 

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 difficult times, you might be comfortable with 3 months of savings. However, if you have a partner, children, or a mortgage/rent, you might be better off with 6 months of savings or even more. Consider keeping that money in easily-accessible accounts, so you can access it quickly if you ever need to. 

That can sound like a lot, but a simple step can help - try automating moving a portion of every paycheque into an account to help you build up your savings over time. The automatic contributions will add up over time without your having to pay much attention to them. To learn more about establishing an emergency fund, read “Save for a rainy day“. 

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. While rates vary by country, 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 prioritise paying down any debt with an interest rate of 6% or greater (although this may not be avoidable in certain countries). 

Reducing your debt load can help free up money for financial goals—from retirement, to education, to buying a house. It also gives you more financial flexibility and toughness, 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 “Paying down high-interest debt“.  

3. Insurance matters 

Insurance is there to protect you if you're ever facing a potential financial loss. Depending on your personal situation, government programs, and company offerings, you might consider a variety of types of policies, including health, disability, life, car, 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 hold back on insurance as a way of reducing your monthly expenses, remember that doing so can be risky. After all, the nature of surprises is that they are unexpected. You may not know what type of loss may come, but it is possible that you will face a situation with one or more losses. Go the Protection section of the site for more resources.