Emergency Fund

How large should your emergency fund be? In today's difficult job market, finding a new job takes longer. To be on the safe side, we recommend that you have enough set aside to pay your expenses for at least 3 months, but preferably 6 months. Keep your fund in liquid assets (such as a checking account, savings account, or money market fund) that you can cash in at any time without a penalty.

If you don't have that much in your emergency fund, apply for a home equity line of credit instead of a home equity loan. What's the difference? With a home equity loan, you will pay interest on your entire outstanding balance. But, with a line of credit, you will pay NO interest until you actually take some money out, and then only on the amount you withdraw. The secret? — Don't use your line of credit except in the case of an absolute emergency.

Smart Money Tip #1: Apply for your line of credit NOW — when you have a job; it may be next to impossible to get if you lose your job.

Smart Money Tip #2: If your emergency fund is nearly exhausted, you can take money out of your Roth IRA with no taxes or penalties if you limit your withdrawal to no more than the sum of your contributions.