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Ask any Financial Planner about an ‘emergency fund’ and they will tell you to keep between three and six months of your typical expenditure in readily accessible cash. With the economy as shaky as it is, creating and maintaining this emergency fund is more important than ever before.

This ‘rainy day’ money is your financial safety net should you lose your job or have an unexpected bill to pay. It is the cash cushion that keeps you out of debt (and under your roof) when things go wrong financially. It is pretty important to have.

But how do you actually create this magical emergency fund? What are the steps you need to follow to put one in place?

Work out what you need

The first step in building an emergency fund is to work out what you need. Having a specific target to reach makes it easier to get there, plus you will know when you have reached it!

Your monthly household budget is a great starting point for this. Look through the list of everything you spend each month and then draw a red line through the items you could live without. What you are left with is your committed expenditure. In case of a dire financial emergency, this is the stuff you would have to keep paying.

Once you know this figure, you can easily see for how long your existing savings would last if your income stopped tomorrow. Make a note of this. Would it be a day, a week, a month or longer?

Your emergency fund target then becomes a multiple of your committed expenditure, less any existing savings you have earmarked for the purpose of an emergency. There are no hard rules when it comes to what this multiple should be. Whether you pick three months, six months or a completely different figure is up to you. What is important is that you pick a number and work towards it.

Work out where to put it

You will need a good home for your emergency fund, and ‘under the mattress’ probably isn’t the right answer! The most common place for an emergency fund is a savings account with a bank or building society. Assuming your savings with that institution do not exceed the £50,000 limit of the Financial Services Compensation Scheme (FSCS), you can sleep easily at night knowing that your money is completely safe.

The returns you get on the cash in your emergency fund are less important that the financial security of that money and knowing you can get access in the event of a real emergency. Interest rates on savings are really low right now, so shop around to get the best deal you can and keep the interest rate under review.

There are conflicting thoughts on whether or not to opt for a fixed rate savings account for an emergency fund. On the one hand, your money should be readily accessible. On the other, you should not need to access this money unless there was a real financial emergency. Putting the financial barrier of the loss of some interest between you and your emergency fund can make real sense for this reason.

Get building

Once you have your target amount and you have a suitable home for your emergency fund, get building. Unless you have a lot of disposable income to hand it will take time to build your emergency fund from scratch, but the sooner you start the sooner you will reach your goal.

Factor your savings towards an emergency fund each month into your household budget and monitor your progress towards the target amount. Depending on how you prioritise the existence of an emergency fund, you may want to put other financial priorities, such as saving for your retirement, on hold temporarily until your emergency fund is created.

Whatever you do, have a plan and make sure it is documented. Creating an emergency fund (if you do not already have one) should form an integral part of your written Financial Plan and it should be something you review on a regular basis.

Leave it alone!

Once you have built your emergency fund, you need to resist the temptation to dip into it for anything less than a real financial emergency. It helps here to write down the possible reasons for accessing this cash. If your ‘emergency’ doesn’t appear on your list, you cannot touch the money.

The only exception to this ‘leave it alone’ rule is to include your emergency fund in your annual financial review, to make sure it remains at an appropriate level and is earning a competitive rate of interest.

Martin Bamford is site editor of BrilliantWithMoney and a Chartered Financial Planner at Informed Choice.