Protecting Yourself Financially

Although budgeting and staying out of debt are some of the most important money management practices, there are a few other things you can do to protect your financial situation.

Develop an emergency fund

An emergency fund is simply some money you've set aside to deal with an emergency (a REAL emergency, like replacing your car's transmission, NOT spring break in Cancun). Many experts suggest having a minimum emergency fund of $1,000. If you are so strapped you're saying "I can't afford to save that much money," the truth is, you can't afford not to have an emergency fund.

Think about it: if you don't put back $100 to $200 a month for an emergency fund, how can you hope to repair that transmission when it goes out? Credit is an option, but then you will be paying the same amount or more to credit card companies. In fact, if you only pay the monthly minimum, you may end up paying nearly twice as much. If the monthly minimum for such a payment would be $30, why not put that $30 in your emergency fund beforehand so you will be less likely to go into debt later?

Identity Theft

Most commonly, identity theft comes in the form of the thief opening credit lines in someone else's name and making fraudulent purchases. Many times, the victim doesn't know this has happened until they attempt to borrow money or they are contacted by a collection agency to recover the delinquent funds.

You can avoid identity theft by protecting sensitive or identifying information, such as your social security number and account numbers.
Be sure to:

• Shred or destroy mail or other documents with account numbers or other information before recycling or trashing.
• Maintain computer security by avoiding obvious passwords (names, significant dates, etc.), not giving out passwords, and being wary of emails or fake websites designed to get your login information (aka phishing or spoofing). Phishing scams typically involve an email appearing to be from a legitimate company asking for your login information or directing you to a webpage that looks like the actual company's webpage (for example, a fake credit card website). Avoid this scam by not accessing sites through email links, and instead type the web address manually.
• Check your credit report annually for new credit lines you did not open. You can request your credit report from any of the three credit bureaus:
• Equifax
• TransUnion
• Experian

If you do become a victim of identity theft:

• Call the credit bureaus and place a fraud alert on your credit report
• Cancel all credit card and bank accounts and open new ones
• File a police report and obtain a copy of the report (as proof of the theft)
• Contact the post office to make sure no one has filed a change of address form to divert mail to another address
• File a complaint with the Federal Trade Commission

Insurance

Insurance can keep a minor accident from taking 10-20 years to recover from financially. In general, you should insure valuable things you need to protect, such as your car, house, and, most importantly, yourself.

Although severe property damage can be a huge setback, it is minimal compared to losing the ability to work and make money.

Insurance is a lot like an emergency fund; most people cannot afford to be without it.