As well as saving for your old age you’ll always need to have a contingency fund. I can’t give you a definitive list of emergencies but here’s a few to get you thinking. Don’t have nightmares now:

• accidents – motoring, industrial, work-related
• illnesses
• sudden legal problems – like being sued or arrested wrongly
• land disputes – very expensive indeed
• problems with children – don’t start me off, there are too many to list here including drugs, unwanted pregnancies, trouble with police, motoring, illnesses, travel problems (it’s expensive to get them back from Thailand when they run out of money and/or enthusiasm)
• acts of God – floods, earthquakes, tsunami, droughts, subsidence, forest fire, pestilence (whatever that is)
• sudden unemployment
• sudden liquidation of your company
• recession.

So how much to put aside and where do we put it? Well, the wise move is to put aside enough to keep you going in the same style as you live now for three to six months without having to even think about money for that period. Roughly half your annual income if you like. Obviously if you get completely wiped out in a tsunami or forest fire you’ll be insured so can collect, but you will need something to tide you over. Medical bills can also be covered by insurance.

So where to keep it? Most people keep it as a savings account – high interest of course, but instant access. Personally I’ve noticed the shrewd rich ones keep a safety deposit box with cash for emergencies as well. Always handy in desperate times.

You only have to look at humanitarian disasters to realize how quickly money runs out and how conventional sources become desperately difficult to access. Surviving the storms of Louisiana was bad enough for most people but it was a great leveller because no one could access the banks because they too were under 10 feet of water. And money quickly becomes a useless currency – food and water become the priorities then (and guns I believe, but I don’t want to go there).

You might choose to take out sizeable insurance policies to help alleviate the problems sudden emergencies can cause... Alternatively you might prefer to squirrel away an emergency fund in a highly liquid account (easy quick access), such as a savings account or money market account (which pays higher interest rates). But, as usual, take detailed advice from a proper financial expert – not me.