One of the first and most important steps you should take to safeguard your financial stability is to set aside an emergency reserve fund. The idea is that the fund can be used either for a major unexpected cost (such as medical expenses) or to cover your basic living expenses if you (or your spouse or partner) is temporarily out of work.

How Much is Enough?

Exactly how much money you should keep in your emergency fund is open to debate. At an absolute minimum, it should cover your daily living expenses for three months. Six months would be wiser, and some planners recommend a full year.

How Do You Begin?

Don't feel like you have to create your entire fund this week. Most people start by setting aside a monthly amount -- for example, 5% of their paychecks, or another amount that lets them build up one month's worth of living expenses over the course of a year. It helps to make this automatic, for example, by asking your bank to set up an automatic deduction program from your checking account to your savings account.

Also monitor your monthly spending, and look for areas you can trim. And if you receive any promotions, work bonuses, or other unexpected windfalls, think first about adding them to your emergency fund -- before you get used to spending the extra money.

Where to Stash Your Cash

Because you might need to get to your emergency fund in a hurry, keep it somewhere that's both easy to access and safe. Don't put cash in your freezer, but don't tie it up in funds like a long-term CD or in stocks whose worth may have declined just when you need the money. Your best options would most likely be a savings account or money market account, depending on what they're offering by way of an interest rate, minimum balance, and other terms.

And when you've saved up enough, stop! You can now sleep easier, and start putting any additional savings into higher-interest (usually less accessible) accounts or investments.

To learn more about creating an emergency fund, and other money issues affecting families, get The Busy Family's Guide to Money, by Sandra Block, Kathy Chu, and John Waggoner (Nolo).