by Raven Lebeau

Created on: April 16, 2009   Last Updated: January 30, 2010

True financial security is not just about having a large income. Finding a steady source of pay is a good start to getting on track financially, but in order to be truly financially stable you need to be prepared for those unexpected twists of fate that can hurt your bank account balance. Whether its a medical emergency, the loss of your job, or a large home repair bill, you can make sure you are prepared by taking the following precautions.

1. Have appropriate insurance.

Having medical, dental, car, and homeowners insurance is a good way to avoid financial catastrophes. Make sure to read the fine print on a policy before choosing one. You need to know what you are buying with your insurance premium dollars. For some people, having extra coverage, such as a separate prescription drug plan or a liability insurance policy, can be a good idea. Decide what makes sure for you so that you are thoroughly covered.

2. Have a safe emergency fund.

Investments in stocks, bonds, real estate, etc. are still a good idea, but as the recent financial crisis has illustrated so well, no investment strategy is without risks. In order to keep yourself financially protected, you need to maintain a safe savings account separate from any investment projects. This savings account should be enough to pay for insurance deductibles in case of a car accident or medical emergency, and in case you lose your job, your emergency fund should have enough to pay your bills until you find a new one.

3. Maintain your car, your home, and your appliances.

Fix problems such as leaky pipes or damaged windows as soon as you notice them. If you don't know how to perform a repair yourself, hire a professional to do so. Be sure to replace parts on your car according to the recommendations in your owners' manual. Do the same for your appliances. By making small investments in upkeep, you can help avoid a major financial disaster such as having to replace an appliance or pay for a major home or auto repair.

4. Keep your skills up to date.

Try not to get into a rut at work. Keep your skills sharp by learning new tasks and challenging yourself to take on new projects. If your current job does not allow much room for professional growth, then consider taking a continuing education class or even a regular college class in order to keep yourself marketable. This will not only make you more valuable to your current employer, it will help distinguish you from other job seekers if you need to find a new job.

5. Understand the difference between luxury and necessity.

By paring down your expenses as much as possible now, you ensure that you can save money for an emergency. If you have a good income now, giving up luxuries like cable TV or spa treatments can be tough. However, even if you can't bring yourself to part with certain luxuries, have a mental list of what you can do without if times get tough. Knowing where you can cut expenses will help you cope with a financial crisis.

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