Some of us can cope with a single unexpected bill, but a raft of unforeseen expenses – boiler failure, a spell of illness and extended time off work – will leave many of us close to the edge.
Depending just how risk-averse you are, the insurance industry has created a wide range of protection policies for you to buy - from central heating insurance to critical illness.
Some insurance operators offer cover from cancer and other illnesses, promising cash for expensive drugs the NHS might not provide.
How much protection do you really need?
Financial psychologist Kim Stephenson, an ex-financial adviser, says the insurance protection he considered essential when he worked in the industry was a policy that kept a roof over your head, should the worst strike.
If you are young, single and without dependants, you might not feel something like life insurance is right for you – after all, if you suddenly passed away, there is no one left behind relying on your income.
But if you have children or other dependants, life insurance can be essential as it will ensure your family are financially protected and able to keep up with the mortgage or rent payments if you were no longer around.
Income defence can also be important, says Stephenson. Illness like cancer can strike anyone. If you can afford it, critical illness cover can make sense.
Will it better
It’s also sensible to have a decent chunk of savings stashed away somewhere so that you can fall back on this in an emergency, reducing the need for last-minute high interest loans.
Experts recommend a minimum of three months’ money as accessible savings. That should give you enough time to find a new job, for example, or change your lifestyle to live within your new budget.
But it’s not just about having the money to hand. Emergencies come in a variety of strengths, says Joe Roxborough, independent financial adviser at Ascot Lloyd, and plans for handling them should lie in a safe but obvious place.
“Wills and powers of attorney are essential,” he says. “Ensuring your family know where your assets and insurances are held – with a ‘crib sheet’ for your spouse or children – provides an action plan in a stressful time.”
At the simplest level this means enabling someone to access your passwords and accounts so they can act on your behalf if you are ill or injured or, on the worst case scenario, you pass away. (You can find out more in our article on preparing for bereavement.)
What simple steps can I adopt quickly?
There are also a number of easy steps you can take to lower bills before they hit.
Robert Cheesewright at Smart Energy GB says ancient analogue gas and electricity meters are a nightmare for tracking the extra gas you use in winter, skewing the winter fuel bill.
“Smart meters are a simple solution to this. They give you near real-time updates on how much you’re spending in pounds and pence via a simple in-home display. So next time you’re expecting a bill, you’ll know exactly what’s coming.”
You should be able to get a smart meter for no extra cost by contacting your energy supplier.
Shopping around and switching to a cheaper energy deal is another easy way to reduce your bills, and resisting the temptation to renew with your existing car or home insurance provider is another. Shop around for a better deal instead.
Loans and credit cards
Being able to borrow in an emergency can be helpful too. But when you’re skint is exactly the wrong time to suddenly think about it. You need to have built up a good credit history during the good years.
That means a sensible level of borrowing that you regularly repay on time and in full. Showing you are responsible borrower is likely to give you access to larger sums at lower interest rates.
While you might not need to borrow in the good times, it can pay use a credit card and repay it at zero or low rates so you build up a credit score for when you do actually need to borrow more.
You can use our Credit Monitor app to check your credit score and get advice on credit cards available to you.