This is your third step on your journey to experiencing financial freedom.  We've established a small safety net in the first step.  Paid off all debt except your home mortgage in the second step and now the fun begins.  Whereas the second step was very long, frustrating and at times depressing, this step picks up where the small safety net left off. 

  The small safety net that we began in the first step is like having a cot.  It's nice to have but it's a bit small if you need to catch something large like a job loss or medical emergency.  Enter the large safety net also known as an emergency fund.  You need to have 3 to 6 months of expenses saved to cover those Murphy moments when life comes at you so fast that you are just trying to keep your head above water.  At those times you need to be able to focus on what is important, and should not have to worry about how to cover the financial aspects of the situation.

  Keep in mind that this savings covers 3 to 6 months of expenses and not income.  The easiest way to determine how much you should save, is to look at your budget for the past several months and average your expenses.  At a minimum you should include groceries, housing including lights and electricity, clothing and transportation including insurance. 

  Where should you put the money?  This money needs to be in something that allows you to quickly and easily access the funds.  My personal recommendation is a money market or similar type account with check writing privileges that earns a slightly better interest rate than your savings account.  However, you're not trying to make a lot of interest on this money, so DO NOT treat this as an investment. 

  Lastly, my wife and I will be shooting for 4 months initially.  This seems a reasonable compromise which falls in the middle of the 3 - 6 month range.  If you have a highly irregular commission based income then I suggest that you aim for the higher end of that range.  This will ensure that you are covered for those extended times of lower income.

  Completing this step will put you in an excellent place.  In fact, for some of you, it will be the most money that you have ever had in an account with your name on it.  I hope that the thought of having a pile of cash in the bank to cover emergencies is beginning to excite you about the possibilities.  If so, just wait until we cover retirement and you realize that the average American can become a millionaire without winning the lottery.  Remember, I'm about giving you simple plans to live a successful life so that you can impact your world and leave a legacy.