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b"In early 2015, the Consumer Finance Protection Bureau proposed a framework for understanding financial well-being in terms of four elements.
The first two have to do with financial security: feeling in control of your monthly expenses and being able to absorb unpredictable financial shocks.
The other two are in regards to financial freedom: \\xa0being on track to meet goals and having the flexibility to make choices.
I want to talk today about the second principle: being able to absorb financial shocks.
Financial Emergencies\\xa0
Some of us seem wired to worry about money and finances.\\xa0 You know a small amount fear can be a good thing, but it can also quickly snowball into a negative, energy-draining phenomenon.
Start by asking yourself a series of questions:\\xa0

* Do you have a particular scenario or maybe a list of scenarios in mind when you worry about a future financial shock?


* If this or another shock were to actually come to pass, what do you think would be the ideal resolution?


* Also, what resources would you need in order to handle a surprise hardship? By resources I mean cash savings, health insurance, and unemployment insurance, or even other non-financial assets like your job skills.


* What measures do you need to take to absorb the kind of shocks that you find most worrisome and keep you up at night? After all, if this is keeping you awake at night, it\\u2019s about time you got some well-needed rest.

These worries could be anything from unexpected medical expenses, car or home repairs, emergency travel related to family crises, or job loss.
Defining your particular fears and talking about them with a financial advisor is also something to consider.\\xa0 It will help to identify unrealistic versus reasonable financial fears and what plan should be put into place to better put you at ease.
There are at least two ways to prepare for a financial emergency, the first is putting aside money for an emergency fund.\\xa0 I know that putting money aside can be difficult for some as it requires discipline to saving a certain amount of your income until you have a decent emergency reserve.\\xa0 If you listen to my show, you know I always stress having a suitable emergency fund at hand as it will prevent a lot of devastating financial mistakes that could hurt you for years. Try to put 20% of every paycheck aside to reach your goal and if you can do this automatically through your bank, so much the better.
The second is having a backup plan, taking steps to ensure that you have the confidence, skills, and grit to handle sudden financial challenges which may require more than a monetary solution.
Both strategies avoid resorting to credit cards and other types of borrowing in order to stay prepared ahead of time.
Emergency Fund: How Large and How to Save for It\\xa0
So, just how much is enough for an emergency fund?\\xa0 There is a lot of advice out there.\\xa0 For starters, you'll want to know how to figure how much money needs to be set aside, and, of course, how you'll implement the plan to reach that goal.
Many financial planners recommend setting aside at least six months of income into an emergency fund, sometimes up to nine months if you're a freelancer or your work is seasonal or irregular.\\xa0 This holds true even if you're eligible for unemployment insurance.\\xa0 Unemployment insurance can be immensely helpful in allowing you to leave your rainy-day fund more or less intact.
Health insurance is a huge topic in its own right, but knowing what your deductibles are will give you a ballpark idea of how much cash you'll need on hand in case you have a medical emergency.
If your deductibles are high, talk with a financial advisor or someone from your human resources department about health savings accounts.\\xa0 These can make a real difference by alleviating a cash cr..."