Emergency Savings Account

We hear all the time about 3-6 months of savings for your emergency savings account. Then we hear from the "traditionals" to use the rest to invest in the stock market or in corporate bonds or some other complex financial instrument that you've probably never heard of.

Here at EFA, we're more realistic on the current state of the economy. We recommend the following guidelines:

Age 20-35: 9-12 months of living expenses.

Age 35-50: 12-18 months.

Age 50+: 3 years.

Here's our FAQ on the matter:

Q: Why should I keep so much money in a savings account?
A: Because you might lose your job and you don't want to go homeless in this economy.

Q: Where should I keep this money?
A: 95% In an online savings account. Keep a small amount on hand (such as $1000) in case you need physical cash in the case of real emergency (Hurricane, house burns down, etc.).

Q: Well, everybody else says I should keep only 3-6 months. WHy do you recommend more?
A: How many people that you know have lost their jobs in the past year were able to regain full employment within 3-6 months?

Q: Well... what if I don't have anything set aside right now?
A: Get on a college-like budget and save like a madman while you can.

Q: How much do I need per month?
A: Enough so you can have NO INCOME and still survive completely for that month. Mortgage, food, water, gas, diapers for the kids, sanitary items, etc. Be honest with yourself and understand that you should aim for having the very basics.