If you could prepare yourself for all the contingencies that life can throw at you, you would be much better off than is logistically possible. Life can put up roadblocks faster than you can take them down and the consequences of some them are devastating. Severe illness, death of a loved one, loss of a job, and divorce are all examples of the types of setbacks that are difficult to plan for primarily, because they are difficult to even think about. However, to be prudent you should at least plan for an eventual change in your situation – because eventually it will change.
Always have an emergency fund, at least six months worth of your expenses set aside in a bank account. While current interest rates don’t even cover inflation, it’s still better to have this fund in cash that won’t lose its value due to a drop in stock or bond prices. There is always discussion about how many months you should have in savings; I advocate accumulating six months in cash and carrying no credit card debt. Once you have those two accomplished, start investing in exchange traded funds with low fees.
Now, let’s be realistic. Don’t sweat this – save and scrimp and do everything you can to meet this goal, but don’t lose any sleep. If you start young enough, you have years to accumulate a healthy nest egg. If you have a run of bad luck there are other resources to fall back upon. You can collect unemployment if you lose your job, you can sell other assets if things get really tough. I am an advocate of living life, having a ton of cash set aside when you die is not worth giving up all the fun things – live a little and save what you can, balance is the key to a great life. Prepare for the worse and do your best to insure that your family will be taken care of should something happen, but create some memories along the way.