Wouldn't save 20% of your income cover that? It's just a management detail after that (i.e. leave some of that 20% liquid for emergencies).

I said you should have enough liquidity to get you through a year-long crisis. If you're saving 20% of your income, you're probably.

However, unless you have especially nasty rates on student loans, paying them off shouldn't come before accumulating some fairly liquid savings. The same probably goes for paying extra on the principal on your mortgage and maxing out retirement plans.

I was going exclusively by what was on the notecard. :)

I think the "save 20% of your money" would include a emergency fund. At least that's my assumption.

That sounds wrong. An unexpected year-long unemployment isn't unheard of, but for an already-employed investing professional (i.e. not a recent entrant/re-entrant to the employment market who wouldn't be able to take this advice anyway) it's really quite rare. Certainly it's not true that most people "need" to do that, as it won't happen to them.

This sounds like the kind of failure mode better addressed by solutions like insurance instead of upfront savings.

In broad strokes, the more specialized your skill, the harder it will be to find a job that meets your salary expectations. Sometimes this will mean moving to a new city or being unemployed for over a year. Sometimes this will mean taking a pay cut, which means you'll need some cash to break a lease or otherwise see you through downsizing your lifestyle.

Also keep in mind that it's huge to have 6 months of expenses easily available while evaluating job offers. You're much more likely to settle when you have to worry about paying your mortgage next month.

Both of these replies are speaking to the social issues. Yes, people can lose their jobs, and it does happen. My point was quantitative: it happens rarely, and so addressing it with individual savings is a poor choice for the same reason that we don't pay for catastrophic health care out of savings. "Insurance" is a better social tool, as it requires far less capital be tied down.

And that insurance is readily available in the market, if the duck on my television is telling me the truth.

2008? Lots of well-established, middle-aged homeowner professionals became unemployed for long stretches. The unemployed college graduate narrative gets a lot of play in the media because it challenges assumptions (i.e. that a college degree means you're set for life) but professional middle managers got hit pretty hard also.

Think of maintaining a smaller emergency fund as a form of risk-taking. Every form of investment is a risk, so we are hardly new to risk-taking here.

For example, I keep a very low cash balance and divert most of my surplus to investments. This is partly a gamble, in that I may be forced to sell at a less than ideal time, and partly a credit-backed risk in that my credit cards provide me a buffer large enough to liquidate most of my investments.

You can get your contributions out of a Roth IRA at anytime. That gives me tens of thousands of dollars I can get to in 24-48 hours. It also helps that retirement accounts are shielded from creditors, and hence make better vehicles as emergency funds when you've done sometime like walk away from your underwater home.

Do you need a full year of income liquid? I would think 3-6 months liquid and the rest could be liquidated when needed (for the remaining 6-9 months).