An emergency fund is the foundation of a solid financial plan, and this is even more true for military families. I sometimes talk to service members who say that they don’t need an emergency fund because their military pay is reliable and predictable. While that’s generally true, there are always exceptions. More importantly, military service creates unique challenges that may make a larger safety net even more important.
How Much Should You Save?
Financial experts typically recommend setting aside enough to cover between three and six months of essential expenses. Of course, every situation is different. A young, child-free couple, with two jobs, living in a small rented apartment is going to have different needs than a large military family with one income, a big mortgage, and two car payments.
You also want to consider the ongoing cost of living where you live, overall debt level, whether you have the ability to bring in extra money if necessary, and any special circumstances, such as a special needs family member.
Common Military Scenarios That Can Drain Your Savings
So, what are some reasons a military family might need to tap into their emergency funds?
Well, the most common reason that people need to use their emergency fund is that they haven’t had the opportunity to save enough for predictable ongoing expenses. Car repairs, dental work, and travel home can all become emergencies if you don’t have funds set aside for those costs. While the goal is to have designated savings for these types of foreseeable expenses, that doesn’t always happen. Emergency funds step in to keep you from going into debt for these costs.
Next, you need to be prepared for military pay problems. Over the course of a military career, you can anticipate that you’ll have several pay mix-ups. And sometimes, they can take months to get fixed. Having savings on hand can turn a missed paycheck from a crisis into a manageable inconvenience.
Then, there’s those Permanent Change of Station moves. Even though the military reimburses many moving expenses, there may be out-of-pocket costs—such as pet relocation, rental deposits, or home repairs—that can add up quickly. While most military families find that their moving allowances cover all their costs, there may be delays in reimbursement. That can cause a serious hardship if you don’t have the money available.
Sadly, sometimes military pay is disrupted by politics. Legislation may protect military pay during government shutdowns, but this isn’t guaranteed. And while many military-oriented banks and credit unions may offer short-term loans to bridge the gap, those aren’t guaranteed, either. Emergency savings can help bridge the gap if pay is delayed.
Lastly, not everyone remains in the military as long as they expect. Medical boards, disciplinary actions, or family emergencies can result in unanticipated and often sudden separation from service. These situations are stressful enough without the added worry of financial instability.
Photo by katleho Seisa from Getty Images Signature via Canva.com
Getting Started with Your Emergency Fund
Hopefully, I’ve convinced you why you need an emergency fund. But how much do you need, and how do you create one?
Start by calculating the monthly essential expenses for your military family: housing, utilities, food, insurance, and transportation. Multiply this by the number of months you want your fund to cover. For example, if your family’s core expenses are $2,000 a month, you may want to start with a goal of $6,000 to cover three months’ worth of expenses.
That number may be daunting, so start where you are. See if you can cobble together $500 or $1000 to start, then add to it each month. You can set up a military allotment or automatic transfer from your bank account to make it easy.
You’ll want to be able to access your funds in an emergency. Keep your emergency fund in a liquid account, such as a savings account or money market fund. If you think you’ll be tempted to dip into that money, consider opening an account with a different bank or credit union. You can still make it easy to access, but not too easy.
No matter how stable your military income may seem, the unpredictable nature of military life makes having a substantial emergency fund a necessity. Start building yours today, even if it’s just a small amount at a time. Your future self will thank you.
Get more tips for your military life with MilitaryByOwner's free newsletter, packed with useful resources!
