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The Importance of Emergency Funds for Military Families

Jan 29, 2021 | 2 min. read

Building an emergency fund is an essential first step toward financial wellness.

Type “emergency savings” into Google, and you’ll find hundreds of articles that all promote the same general message: you should save and maintain roughly six months’ worth of income for unexpected expenses. By doing so, you’ll be better prepared to weather a home or car repair, a medical bill or maybe even a job loss without having to dip into your investments or live on credit.

For all the uncertainty associated with life in the military, unexpected expenses – and the financial instability that comes with them – may actually be less likely. Historically, job security in the military is greater and the comprehensive coverage provided to service members protects them from unexpected bills. That means you may not need to park as much money in your emergency savings account as your civilian counterparts – which could give you a head start on investing for the goals that are important to you.

How much, then, should military families keep in emergency savings?

Before you can answer this question, you first need to identify what qualifies as an emergency. If an expense occurs regularly (like a car payment) or can be planned for in advance (like a vacation), it is not an emergency. Set boundaries with yourself up front so you’re not tempted to raid your savings account once you start accumulating money in there.

For expenses that are emergencies, a reasonable savings objective is typically two-to-three months of income. Before you set that as your goal, however, evaluate your situation and factor in anything that could add additional risk. If you own a house or have a large family, emergency expenses may cost more, and having an extra month or two of income in reserve could lower your risk of using credit to make ends meet.

In some situations, it may be appropriate to set aside that full six months of income. For instance, if your family relies heavily on a civilian spouse’s income, or you are planning to separate from the military soon, you are more susceptible to the financial risks that those outside of the military face.

Once you decide on the emergency fund goal that makes sense to your family and military career, figure out how much money you can allot each month and set up an automatic deduction from your paycheck. And when you hit your goal, you can turn your attention to more long-term priorities such as saving for your child’s college education or your own retirement .

First Command Financial Advisors can work with you one-on-one to put together a comprehensive financial plan that includes immediate objectives such as emergency savings as well as priorities well into the future. There is no required net worth, and financial plans are complimentary for active duty service members. Get started  with a Financial Advisor today.

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