How to set and invest your emergency fund

A financial safety plan can help in the event of unexpected costs, job loss, other issues.

- By CHRISTINE BENZ

Emergency funds need a PR makeover. Who wants to think about broken-down cars, sick dogs, or job loss? We should call them “cushion funds.”

Then there's the frequently cited ideal amount: three to six months of expenses. That’s a decent starting point, but it sounds off-putting to people just starting their financial journey.

In addition, people often assume that building a cash cushion means they'll have to hold off on investing for the long term.

But that's not necessarily true: While it’s always valuable to have money in accounts that could be liquidated on a moment’s notice, a Roth IRA can serve as a good multitasker because those contributions can be withdrawn without penalty. And you're still growing your retirement nest egg.

Whatever we call them, emergency funds are crucial at any life stage. They can:

■ Keep you from resorting to high-cost financing.

■ Help you delay unexpected expenses, like a new roof or healtheara costs.

■ Protect your retirement accounts.

■ Cover your basic costs in case of job loss. (That's where the three to six months guideline comes from.)

Here are the key steps to take when setting up your emergency fund:

Step 1: Determine your monthly living expenses