Do Military Members Need an Emergency Fund?
The short answer is yes! Yes, you need an emergency fund.
You might think that having a military pension or being an active duty service member is enough of a security blanket but that’s simply not true. Emergencies come in many flavors and they tend to always happen at the most inconvenient times. Getting ready to deploy? Well, your car is about to break down on I-95. You have a brand new baby at home? Get ready for your garbage disposal to make it rain and destroy your kitchen. Or just your friendly neighborhood hurricane running you out of town.
Ok, I’ve convinced you to start an emergency fund, hooray!
Where do you start?
- Set a goal. Do a budget and to see what your monthly expenses look like. Normally I recommend 3 to 6 months of living expenses in an emergency fund.
- Open a high yield savings account. Look for an FDIC insured bank (online banks offer great rates) that doesn’t have minimum balance requirements. It usually takes 3 days to transfer money out of a high yield savings account but you’ll be earning more than in a traditional savings account. Ally Bank, American Express, Capital One 360, Barclays and HSBC are all good options.
- Start a small recurring deposit. You only have $10 extra a paycheck? Start with that and increase it as you’re able to.
I have 3 months of savings, now what? First off, high five! How do you know if it’s enough? I’m going to give you the classic financial planner answer: it depends. Ask yourself:
- Does your family depend on you solely for income? If the answer is yes, then your emergency fund should be closer to 6 months of living expenses.
- Are you getting ready to transition out of the military? A larger emergency fund will give the flexibility to take a job because you want to take it, not because you have to.
- Does anyone in your household have a seasonal job or is self-employed? I recommend a larger buffer, especially if you depend on this income to pay your normal bills.
- Will you be heading back to school? Is your work contract ending soon? Do you have a baby on the way? These are all good situations where having a larger emergency fund will also provide additional flexibility and peace of mind.
When to Use an Emergency Fund
Now, you’ve built up your emergency fund and you’re happy with the amount you have in your savings account. You did it! You might be wondering, when should I use these savings? Should I ever use them? As military families, we deal with a number of stressful situations so it can be difficult to determine what is a true emergency. Below is a list of examples where using your emergency fund would be using it for its intended purpose:
- Car repair
- Death in the family
- Unexpected medical expenses
- Job loss or furlough
- Pay issue (these never happen in the military, am I right?)
History has shown us that even those of us with stable government or military jobs are subject to uncertainty, job layoffs and furloughs. Having an emergency fund will allow you to handle these emergencies without delaying the progress you’ve made on your other financial goals.