How To Navigate Financial Uncertainty, According To Experts

“An emergency fund is a super, super basic thing that you should really prioritize before you even think about saving money for investments or buying a house,” Rachael Burns, CFP and founder of True Worth Financial Planning, told CNBC Select.

While other experts recommend setting aside three to six months of living expenses in your emergency fund, Burns believes how much you should save depends on your situation. If you have a stable government job, you may need to save less than someone who is self-employed or who works seasonal jobs.

If you’re looking for a place to store your emergency funds, both Burns and Michael McAuliffe, president of Family Credit Management, recommend high-yield savings accounts (HYSA). This type of savings account provides easy access to your money and a higher return than traditional checking and savings accounts.

Look for an account with an APY of 3% or more and no monthly maintenance fees, like the UFB Portfolio Savings, SoFi® Checking and Savings or Western Alliance Bank High-Yield Savings Account.

Planning ahead for financial setbacks reduces the likelihood that you’ll be forced into making a suboptimal decision.

“It’s just an incredibly inefficient way to meet a financial need,” Burns said.

While you may be able to borrow against your 401(k) balance (depending on your plan), this isn’t an ideal reaction to, for example, an anticipated job loss.

“When things are rough, taking on a 401(k) loan… has a lot more consequences than people think,” McAuliffe said.

If you lose your job, you will need to repay the loan, or it could be considered a distribution and subject to taxes and a penalty. The exact repayment period varies, so if you’re in this situation, call your plan administrator for more information.

Even if there are no negative changes in your financial situation, saving today and protecting yourself from the worst-case scenarios will put you in a better position down the road.

Rather than agonizing over every possible scenario, Burns prefers to think about how likely an event is and determine if you’re in a situation to withstand it.

“Then we address each of those risks as best we can,” she said.

Events like severe illness or injury, death of the household’s primary income earner and damage or theft of your property can all be covered by insurance.

If you own a home and have a mortgage, you’re typically required to have homeowners insurance, which protects your property. Further, renters can protect their belongings with renters insurance. Many companies offer discounts for bundling insurance policies, including Progressive, which offers renters insurance in all 50 states.

At CNBC Select, we work with experts who have specialized knowledge and authority based on relevant training and/or experience.

Michael started Family Credit Management in 1996 after working in banking and credit counseling. He received a bachelor’s in business management from Concordia University Chicago and a master of science from Abilene Christian University.

Rachael Burns is a certified financial planner and certified divorce financial analyst.

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