I’ve talked before about the importance of having some sort of liquid savings, what is usually referred to as an emergency fund. It’s a topic that’s brought up quite frequently on financial blogs and everyone seems to have their own opinion. I’m not going to go into a lengthy explanation of what the right amount for one is and how it should be handled, but I am going to discuss what I personally do.

I’m aiming for one year’s worth of living expenses saved up in liquid savings. To repeat, that’s one entire year’s worth. I’ve heard it time and time again that it’s too much and better returns could be had elsewhere. Regardless, one year’s worth is what I’m going for, and you’ll see shortly how it’s not really that tough of a goal.

So how do I plan to accumulate that much? Some may be thinking that it’s a great goal to have but maybe a little unrealistic or something that will take years to achieve. This isn’t the case, and I’ll explain why. Every time I get paid I put 20% into this emergency savings account. If this was all I did, it’d take 4 years to reach my goal of one year’s worth (80% left over, which is four times twenty). This isn’t the whole story though. I also pay 10% of any earnings to our church as tithing and put another 40% into another account reserved for future investments. What this means is that only 30% of my take home pay is left over for living expenses, bills, and other spending.

So with this scenario, how long will it take to accumulate one year’s worth of savings? About a year and a half. Living expenses account for 30% of earnings, and 20% is saved. So you can see that it’s not a distant far off dream to have an entire year’s worth of savings. It does presuppose living well within one’s means, but the less you live on, the less you’ll have to save to cover it. So there you have it. One year’s worth of savings done in 18 months.

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