First let me explain what an emergency fund is for and how much you should have there. We have all been in the place where a major appliance breaks, or you get into a car accident, or one of your kids has an emergency, this is why you need an emergency fund. These are the dollars that sit in a checking, savings, or money market account and are liquid at a moment’s notice. How much you should have in this fund is a matter of personal preference. I think at least $5000 is good, some people feel comfortable with $10,000, some do not feel comfortable unless there is at least $100,000 in the emergency account.

Your 401(K) is for your retirement, which hopefully will last a very long time. You do not want to be dipping into your 401(k) for short term emergencies. Work to build your emergency fund, you will then have some peace of mind.

Disclosures:http://www.hechteffect.net/?page_id=31