If you’ve given any thought to successfully managing your personal finances, you’ve undoubtedly learned that one of the most important thing you can do is to establish an emergency fund.

Setting aside cash to handle unanticipated expenses is often the best way to shield oneself from a dramatic financial crisis and virtually any financial planner worth his or her salt will insist that a client build up adequate savings before exploring more aggressive investment options.

Today, the need for a “safety net” is even more pronounced.  Credit isn’t as available as it was a few years ago, making the credit card (which was always a horrible substitute for cash savings) into a complete non-option.  Unfortunately, tight economic circumstances are also making it more difficult to build savings.

That may lead some people to wonder if a home equity line of credit could fill the safety net role.  That line of thinking isn’t new.  People have been relying on the fact that they could secure a line of credit against the equity in their home as a “backup plan” for years.

Recent news, however, suggests that the home equity loan may not be a viable alternative to cash savings anymore.

A recent Associated Press article explains:

Building a six-month emergency fund may be a near-impossible stretch for many. Taking out a home equity line of credit of $30,000 or more can help fill the gap.

Dipping temporarily into the home equity line would enable you to leave other investments with better yields intact.

Getting one may be more easily said than done without a stellar credit score, however, especially with home prices still falling. Many people with existing HELOCs are having them cut.

The downturn in the real estate market and the oft-discussed “credit freeze” are making it much more difficult to secure a home equity line of credit.  As home values continue to decline, banks are more reluctant to extend additional credit to those who have established equity lines.  They’re also less likely to extend a “HELOC” to those who don’t have one already.

Even those who already have home equity lines are learning that they don’t offer the kind of security one can have with adequate savings.  That’s because many banks are actually capping and cutting existing lines.  People who operated under the assumption that they had $X of credit available to them in case of emergency are getting letters telling them that their limits have been lowered, sometimes creating nerve wracking circumstances.

It’s hard to blame the banks for taking this position.  As foreclosures mount and home values drop, it’s becoming increasingly clear that “home sweet home” isn’t carrying the cache it once did.

The latest numbers indicate that the number of missed payments on HELOCs are up.  From a lender’s point of view, a home equity loan just isn’t as safe as it once was, so they’re cutting back.  Larger economic forces are also keeping banks rather timid, as they try to minimize their risk exposure in a volatile economy.

So, if you’ve been thinking of a home equity line of credit as a stand-in for savings, you should rethink your position.  It’s becoming clear that one shouldn’t rely on a HELOC to cover unanticipated expenses or emergency needs.

The alternative?  It’s not pretty, but it works.  Save the money.  Sure, it’s tougher for a lot of people to get the job done right now, but it’s the only way to protect yourself against nasty unforeseen circumstances.  If you don’t have an emergency fund, start building one now.  Go through your budget with a fine-tooth comb and start finding out how you can build an adequate cash reserve.