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While I was paying off debt I kept a small efund of $1000. My rationale was that if something did happen I did not want to use the cards under any circumstances. The amount is up to you. For some people the $500 to cover most insurance deductibles was enough. As a homeowner, I chose to keep more in the event that something happened around the house (i.e. hot water heater).

I suggest you keep this someplace very liquid and in an interest bearing account. I used ING Direct but there are plenty of other choices.

s far as the 401K goes, since there is no match I would hold off on it. Others will tell you that you can never get these years back to invest for your future...again a personal decision.
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