brown on green, A Regular column about finances

How Much Should I Save?

Many financial experts have developed formulas to determine how much someone should save. Some use the 50-30-20 rule, meaning 50% for necessities, 30% for luxuries (nice but not necessary), and 20% for financial goals such as emergency savings and retirement. Opinions vary on how much you should set aside in an emergency fund. Some suggest 20% of your annual income. Others prefer the idea of three months of your monthly expenses as a goal. Still others advise a healthy emergency fund of six to nine months of income.

Obviously, a Christian will adapt these rules to include tithing; perhaps a 70-10-10-10 rule would be in order. It would look like this: 10% to tithe, 70% for living expenses, 10% for retirement and 10% for an emergency fund.

Emergency funds are critical, and some experts encourage a fully funded emergency fund before saving. I think working on all financial goals at the same time makes the most sense. Although it will take longer to reach your emergency fund goal of 20% percent of your annual income or three to nine months of living expenses, saving for retirement is also critical. The most important factor in a good retirement is to start early.

How much you choose to put in an emergency fund depends on your situation. Someone in a secure job situation might put less in an emergency fund than others whose income is based on sales commissions. Life situations also play a factor in how much you set aside for emergency savings. A healthy single adult renting an apartment may not need as much as a family that owns a home with potential maintenance expenses.

Continue to put money into the fund until you reach the monetary goal you select. Some suggest you then stop saving for that category until you have to tap the emergency fund. I suggest continuing to build the fund, using the excess to purchase big ticket items like a car. This will help avoid financing expenses on these and other expensive items often purchased on credit.

While opinions vary about emergency funds, all Free Will Baptist families should agree on one thing: the Money Management Trust (MMT) offered by FWB Foundation is the best place to put an emergency fund. MMTs offer easy access to your money and always earn a good rate of return (currently 2.75%) with a minimum balance of $1,000.

Call, email, or visit our website for more information on how to start an emergency fund started through an MMT at the Foundation.

About the Writer: David Brown, CPA, became director of the Free Will Baptist Foundation in 2007. Send questions to David at david@nafwb.org. To learn how the Foundation can help you become a more effective giver, call 877-336-7575.