The following tips to prevent you from going broke will prevent you from becoming this guy ... photo by CC user foreverphoto on Flickr

The past few years have been difficult for many people financially. However, there are also many people who have made it through without much of a negative impact financially. How were these people able to do it?

There are many things a person can do to prevent themselves from being sucked down a hole of financial ruin. The proactive steps that you take when things are going good will often determine how you do when things go bad.

You should always think about the future, keeping in mind the worst case scenario. Your goal should then be to protect yourself if the worst should happen. Here are some tips to prevent you from going broke.

1) Make a budget

Budgeting your expenses is one of the oldest and most effective ways to manage your money in an efficient manner. If you always know how much you are spending, what you are spending your money on and what your limit is, you will be less likely to have financial problems. When it comes to their finances, there are many people who are so disorganized that they do not even know how much money they have in their bank account. This can lead to overdrawing your account and being charged a fee as a result. You should always know how much money you have in the bank and at home at any given time. Write down your expenses and how much you earn. If you are barely making enough to cover your expenses, see if you can eliminate some of the unnecessary things you are paying for.

2) Buy insurance

Since it is the law, every person should have auto insurance. However, millions of people drive uninsured every day. These people are playing with fire. If they cause an accident, they could be sued for damages. Without insurance to help them, they could lose their house and everything they own. Your home should also be insured. Do not take the unnecessary risk of going without homeowners insurance. If your house should burn to the ground and it is not insured, you will be left with nothing. Call insurance agents in your area to compare rates.

3) Start an emergency fund

It is a good idea to always put money aside for a day when you need it the most. Open a bank account and put money into it every week while you are doing good financially. Only take money out of the account if it is an emergency.