Emergency savings

Hi,
Many financial experts recommend that one sets aside an emergency savings in the range of 3 to 6 months of living expenses. Some recommend 12 months if you have more unsteady income sources.

I agree with this. The only thing is that I think you need to pay down the majority of your debt (consumer debt) first. I was the type that I set it up as a goal, but it took a looooooooooong time to actually start building up this kind of emergency fund. My target is 6 months of living exepenses. I mange these funds in two ways:

a) Half the money I have for emergency funds, I put into "I" Bond savings bonds. I bought paper bonds so that it makes it very difficult to cash out (vs. an on-line transaction). You can still order paper bonds at your local bank (I did through Wells Fargo). Or, you can do it online but it makes it too easy to sell :-). This also enables me to defer taxes on these bonds.

b) The other half of my emergency savings, I use to buy "play" stocks. I am killing two birds with one stone here. For the majority of my investments, I am highly diversified in low-cost mutual funds (60% stocks, 40% bonds, across multiple asset groups and styles). However, like many people, I still get the "itch" to buy small amounts of stock for crazy ideas. I set aside a brokerage account the only has "emergency savings". I use these funds to buy a little bit of a few different stocks. I do not pursue *highly* speculative stocks for the majority of these.

This approach can help you meet multiple objectives. To have a financial fortress, you need an emergency fund to see you through tough spots and times that you just don't expect. However, rather than letting all the money be idle, I think it is fine to invest part of it (I use it to get this playing out of my system and not distrub my overall investment strategy).