If you lose a job the cost of lunches, commuting, dry cleaning and day care could go away while the cost of health insurance and job hunting would increase. Your mileage may vary.

A good rule of thumb is to make sure you replace 80% of your income for 6 months.

I would not even consider investing in stocks until I had 6 months under my belt. The purpose of any investment is to bring a future return. This is much less likely if you have to pull out at the slightest sign of difficulty or when the stock market tanks. If you are unemployed, it would be almost impossible to watch your assets plunge 50% without freaking out. It is the freaking out (and selling low) that causes the most heartache.

In short, make sure you have the financial backbone to weather short term fluctuations.

Sometimes, while building wealth, it is advisable for people to keep their money ‘under the mattress’. Stock and bond markets are increasingly volatile and gold is almost $2,000 an ounce. This is not a bad thing. If things seem freaky, just put your money in the bank. Building the habit of saving is the most powerful habit you could imagine.

If you have credit card or consumer debt you should be paying 30% of your income in reducing that. Debt is the slavery of the free.

If you are on the road to eliminating consumer debt then my advice is to ignore CNN and MSNBC. Put 20% of everything you earn in an FDIC bank account until that amount reaches 6 months of YOUR family’s living expenses.

Then, max out your 401(k) at work by putting 60% in a Broad based stock index fund and 40% in a broad based bond index fund.

At the end of the day, remember this: Habits are more valuable than money.

Thanks Alfie