NEW YORK (KRT) – A car accident, busted boiler, sudden layoff or unexpected hospital stay can do significant damage to your finances – unless you had the foresight to maintain an emergency fund.

An emergency fund is simply a savings account or other investments set aside solely as a financial safety net. In her new book “Just Give Me The Answer$,” Sheryl Garrett, a financial adviser and founder of the Garrett Planning Network, said tapping a specific account for emergencies is better than building up credit-card debt or borrowing money.

How much you should save depends on your other financial obligations and monthly expenses, the number of dependents you have, the stability of your income, your access to low-cost loans and the state of the economy and job market.

Garrett recommends that you set aside three months’ to six months’ worth of living expenses when your job is secure and the economy is good. But if the economy is bad (assuming it would take you longer to find a new job), you should save six months’ to a year’s worth of expenses.

To calculate how much you should save, divide your annual net income by 12. Multiply the resulting figure by the number of months for which you have to save.

This should account for all your major monthly expenses, as well as other charges that add up.

Make sure to contribute to your emergency fund regularly. Have the amount automatically deducted from your paycheck.

Keep the money in a savings account so that it earns interest. As the fund grows, you may consider moving some of it into a money market account or CD. But don’t put it all in a CD – you’ll pay a penalty if you need to withdraw money before the certificate of deposit matures.

The only time you shouldn’t contribute to your emergency fund is when you have significant outstanding credit-card debts or personal loans. The high interest rates you’ll pay on those debts outweighs any interest you’d earn saving with an emergency fund.

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AP-NY-07-15-04 1807EDT