The typical rule of thumb is to put three to six months of living expenses in an emergency fund. That may sound like a lot, but keep in mind that expenses need to cover only the basics: shelter, food, transportation, medical and life insurance, utilities and so on, not discretionary expenses.

As to whether the fund should cover three months, six months or even longer depends on your financial circumstances. A three-month fund might be ample if your job looks secure and you have multiple sources of family income, but you may want a larger fund if you depend on a single job or your income fluctuates due to self-employment, seasonal or commission work.

The size of the fund also might depend on what alternate sources you have for cash or borrowing. You may not have to build as large an emergency fund if you have a home equity line of credit already in place, though it's usually better to take money out of savings than to borrow. However, generally don't rely on credit cards or your retirement accounts in place of an emergency fund.

Finding the cash to build an emergency fund can be difficult, especially for lower-income families. Start small, if necessary. Even a month's worth can be a big help. A survey by USA Today/CNN/Gallup in early 2001 found that 15 percent of employees would last only a week if they lost their job, and 30 percent could make it only a month without suffering financial hardships.

Find cash by cutting expenses, working extra hours or an extra job, or socking away bonuses or tax refunds. A more controversial strategy is to temporarily stop contributing to retirement plans and divert that money into the fund. Others argue that this should be a last resort because you're missing out on tax-deferred growth and possibly a matching contribution from your employer.

Where should you stash the emergency money so that it is easily accessible and relatively free of risk? Again, experts differ.

The most common and widely acceptable parking place for an emergency fund is in a savings account or money market account. They're safe and easily accessible. The problem these days is that they pay a pittance in interest.

Certificates of deposit (CDs) usually pay a little higher than savings accounts or money markets. However, the problem is that if you need to break into a CD before its maturity, the bank either may not permit it or it will penalize you. You might keep part of your emergency fund in cash and part in a CD. For example, you might have three months' expenses in cash and three months in a 90-day CD.

You could also employ the above strategy using short-term Treasury securities instead of CDs. You can sell the securities easily whenever you want to, but the risk is, if interest rates have climbed in the interim, you'll lose some principal.

A more controversial approach is to invest part of the emergency fund in short-term bond mutual funds, which potentially should earn more than the above options. This may be appropriate for longer-term emergency funds, but you run the risk that the fund will drop in value during the interim.

Some observers even suggest putting part of a large emergency fund in conservative stocks or stock mutual funds, partly on the theory that you probably won't need all the money and you're losing out on valuable returns letting it idle in a money market. But again, you risk that the market, the fund or the stock will be down just when you need the money.

Another alternative is a Roth individual retirement account. Your earnings grow tax free, and you can pull out contributions free of tax and penalty for an emergency. However, one drawback is that if you pull funds out for more than 60 days you can't easily replace them because annual contributions are limited.