Some financial advice is given so often that it becomes common folk wisdom. The old adage about "saving for a rainy day" is certainly one of those bits of advice. I'm sure you heard it as a child, and you've probably said it many times, but saying and doing are two different things. According to the Consumer Federation of America, fewer than 40 percent of American adults have an emergency fund to fall back on in the event of a financial disaster — which means when the rain falls, there are many who are going to get very wet.

We all like to think it can't happen to us, but the reality is that bad things do occur and typically unexpectedly. You lose your job. An illness forces you to take time off from work. A natural disaster strikes your area. Or you're simply faced with an unanticipated expense. All these events are possible and unforeseeable.

We need to create a financial safety net. To me that means two things: Making sure you have insurance to protect your health and assets in the event of a catastrophe as well as building and maintaining an emergency fund.

WHERE YOUR SAFETY NET FITS IN

But before we get into the nuts and bolts of creating your safety net, let's put it in perspective with the rest of your financial picture.

If you're trying to prioritize your savings and investing, I believe you should put retirement savings at the top of your list. If you have a 401(k), contribute as much as you can, at least up to any employer match. Next, get a handle on your credit card debt, paying down what you can as soon as possible; large credit obligations can be a drain in the best of times.

With these two priorities covered, you can then focus on building a financial cushion to assist you in an emergency. Now let's talk about how it can be done.

CREATING A CASH CUSHION

It's generally recommended that you keep three to six months of normal living expenses easily accessible. You don't want to lose your home because you can't make a mortgage payment or pay the rent. Keep this cash in something safe and liquid: an interest-bearing checking, savings or money market account at an FDIC insured bank might be a good option. You can obtain your money quickly if you need it, but you'll still be receiving some return. Granted you won't have the growth potential that you might gain by investing this money in the stock market, but the goal is asset safety and accessibility.

Some readers have asked me about using credit as a cushion — this is a red flag. Yes, it's possible to find a cash advance on a credit card, which can be useful in the event of an immediate emergency as long as you can pay it off in 30 days. But I caution against viewing the ability to borrow as an emergency fund. If you lose your earning power, the last thing you want is more debt.

MAKING SURE YOU'RE COVERED

In a recent Schwab cross-generational study, close to 50 percent of surveyed participants said medical expenses and insurance were a top concern; I couldn't agree more. While an emergency fund will help you through a short-term financial challenge, you also need to be prepared for a more serious, potentially long-lasting event — a long-term illness or injury could keep you out of the work force for months.

With today's rising medical costs, health insurance is an absolute necessity for everyone. If your job doesn't provide it, shop around and obtain your own policy. If you're planning on retiring before you're eligible for Medicare, take a look at all your options. No matter the circumstance, you don't want to let your coverage lapse. Health-care expenses cause about 50 percent of bankruptcies in this country. A large emergency fund can even fall short in the face of ongoing medical care.

If you have your health insurance in place, there are a few other types of insurance to protect yourself and your assets:

— Disability insurance: This will help if an illness or injury prevents you from working for an extended period of time. Some companies provide it as well as some states.

— Life insurance: If you have dependents, this is important. Term life insurance is quite inexpensive if you're young and healthy.

— Homeowners insurance: Consider extra coverage if you live in an earthquake- or flood-prone area.

— Renters insurance: This makes sense if you rent and have a lot of personal property.

It pays to comparison shop when you are looking for insurance. Many people purchase unnecessary or inappropriate coverage.

GETTING A GOOD NIGHT'S SLEEP

I think having an emergency fund and proper insurance coverage isn't only about the future; it's also concerning your present sense of well-being. When you know you're financially prepared to handle an unexpected challenge, you'll be able to rest a little easier and enjoy the good times that come your way. And if and when that rainy day approaches, you'll have a shelter to help keep you safe and dry.

Carrie Schwab Pomerantz is Chief Strategist, Consumer Education, Charles Schwab & Co., Inc., Member SIPC. You can email Carrie at [email protected]. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.