The traditional rule of thumb is that everyone should have three to six months cash on hand in case of an emergency.  In a down economy like we are experiencing now, I am recommending having at least six months in reserve because it is taking people much longer to find work today that in the recent past.

How much should you have in the emergency fund?  You emergency fund should have enough money to cover your major monthly bills:

• mortgage payment
• insurance (auto, home and life)
• utility bills
• groceries
• monthly fixed payments (car payments and student loans for example)
• minimum payment on your credit cards

Where do you keep it? Make sure you hold it as cash in an FDIC insured savings account. Or, you might want to put some in savings and hold some of your reserve in Certificates of Deposit with different maturity rates. The point is that you should look at this fund as protection, not as an investment where you will make money.

When do you access it? An emergency could be a job loss, a major medical expense that is not covered by insurance, or the need to buy a new car to get in work in the event of a major accident.

If you don’t have it right now, how can you build these emergency reserves? Start saving at least 10-percent of what you make and put it into your emergency fund. Once you reach a level of three to six months cash, continue to save and put the 10-percent into a retirement account. Other ways to save include being a little more budget conscious and frugal:

• Clip coupon and put the savings in your emergency account
• Sell clothes at a consignment store and put the money in your emergency account.
• Take your lunch to work for a month and cut back on the daily latte. Put the savings into your emergency account.

Use your skill to make extra money on the side such as knitting baby gifts, helping a neighbor with yard work or bartering for services you use instead of paying cash.

To learn more about Miller Advisors and investment strategies, visit my website www.milleradvisors.com