Where to get money when you really need it
Five ways to wrap your hands around cash in an emergency
The advice to keep three to six months of living expenses in a liquid account as an emergency fund may rank second only to "buy low and sell high" in the long list of financial clichés. Like other such wisdom, there's logic to it, of course. Most of us do need funds to fall back on, just in case. But is three to six months the right amount for absolutely everybody? Just how liquid does that money need to be? And where can you turn if your emergency fund isn't enough for the crisis at hand?

We put those questions and more to long-time financial planners who deal with them on a daily basis. Here's how they are telling consumers to guard against happenstance:


First, your fund

"I think it's always a good idea to have $5,000 to $10,000 in a money-market account," says Jane Rose, a certified financial planner in Philadelphia. "Not everybody can manage that, of course, but it's good to work toward."

Michael Boone, a certified financial planner in Bellevue, Wash., thinks that three months of your gross salary is a smart place to start. But that amount should be adjusted up or down, he says, depending on how you answer the following five questions:

1. How much insurance do you have? If you have disability income insurance to keep some cash flowing while you're unable to work, you won't need as large an emergency fund. Same goes if you're retired and have long-term-care insurance to cover home-care or nursing-home expenses. Life insurance will help your dependents pay the bills if you are suddenly out of the picture.

2. Do you have a working spouse? That, too, will reduce your emergency fund needs, assuming you both don't lose your jobs at the same time. "Most two-income couples can sail along just fine for a while if one loses a job," Boone says, especially if their earnings are relatively comparable. "A single breadwinner, however, needs more savings."

3. Are your debts under control? Paying off short-term debt should be an even higher priority than building an emergency fund, many experts say. "If someone has $50,000 in liquid savings and $25,000 in credit-card debt at 15 percent, we'd recommend paying off the debt," Boone says. "That much debt is already an emergency."

If that describes your situation, you may take some comfort in knowing you have company. A 2003 University of Utah study reported that more than half of the U.S. population carried short-term debts, such as car payments and credit-card bills, at the same time that they were saving money. Why didn't they simply pay off the debt, which would, in effect, guarantee them a solid return on their money? One reason, the authors noted, was that many people find it psychologically satisfying to have savings on reserve, even if they are needlessly paying interest on borrowed money. Go figure.

4. How much money do you have in other savings and investments? Not surprisingly, the more you've got, the less you'll need in a separate emergency fund. Boone and other financial planners suggest considering only "nonqualified" accounts here; for example, ordinary savings or brokerage accounts. Qualified plans are arrangements like 401(k)s, which you can't tap into without tax penalties--or without undermining your retirement savings goals.

5. Do you have access to other sources of credit? A spare credit card that you keep in reserve and away from the mall can help you through a rough patch. A home-equity line of credit is another possibility if you own a home. More about both of those options below.