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 money you've set aside to deal with an emergency or unforeseen event, such as car repairs or an extended illness (and 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 your car if your transmission goes out or if you are in an accident but only have liability insurance? Credit is an option, but then you will pay more because of any added interest or fees. In fact, if you only pay the monthly minimum on your credit card bill, 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?

Protect your identity

Opening credit lines in someone else's name and making fraudulent purchases is known as credit card theft, the most common form of identity theft. 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 (phishing). Phishing scams typically involve an email appearing to be from a legitimate company asking for your login information or directing you to a Web page that looks like the actual company's Web page (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 on a regular basis for new credit lines you did not open. Request your credit report from every year and also be alert for things that require immediate attention, such as purchases you did not make, bills that don't arrive as expected, or unexpected calls from collection agencies.

    If you do become a victim of identity theft:

    Consider buying 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.