How much Emergency fund should I have in the Military?
The military is one of the most stable professions in the world. You enlist or agree to an employment term for years, and barring no Government shutdowns, your paycheck is guaranteed to come the 1st and 15th of each month. With that being said, do you really need an emergency fund? Absolutely. I already mentioned that you could be furloughed pay like a Government shut down or face another emergency that can’t wait until your next paycheck.
Lets start with, you need at least $1,000 to get going. You should be able to handle any $1,000 emergency.
So how much Emergency fund should I have in the Military?
The general rule of thumb is to keep 3 months to 6 months of your expenses on hand in liquid form. Liquid meaning being in an account with you able to get the money within a few days. Using credit cards to fund emergencies will just put you in debt and make you more stressed out. We keep ours in a high interest savings account. We personally keep 6 months but that is because we are less risky with our expenditures. Here is how I determine the risk I am comfortable with; I use this checklist below.
Emergency Savings Checklist
1. Do you own your home?
If you own your own home. You know you are on the hook for any maintenance issues that can occur. Do you have cash to replace your air conditioner? Can you handle a leak in your roof?
My philosophy is imagine replacing your roof. Depending on the size of your house, you are looking at $3,000-$10,000. I am going to keep $10,000 at least to cover that.
2. Do you own a rental property?
Maybe you buy homes where ever you PCS (that’s our plan depending on affordability of the area.) This lines up with the the first question. I would keep $10,000-$15,000 to cover major fixes and times where you don’t have a tenant. No tenant means that you are on the hook for the mortgage, insurance, taxes, utilities and upkeep until the next renter comes. I am going to keep another $10,000 for each house I own.
3. Do you have any dependents?
Dependents may determine how much money you want to keep on hand. I know that I am a lot more conservative when it comes to taking care of my family. For that reason, I like to keep at least 3 months of my take home income in my Savings. This makes me feel comfortable. Before I was Active Guard/Reserve (AGR), I used to have 6 months because we didn’t have that type of security when I was a civilian/regular Reserve Soldier.
4. Is your enlistment or tour almost up?
One thing to consider is what your future plans are. If you are reenlisting, you won’t have as much risk. You can probably keep a few months of income on hand. If you are getting out, do you have a plan? Do you know when you will start working? Maybe you want to save 6-9 months of income so you have some buffer to find a new source of income.
5. What is the worst case scenario?
Look at your life and ask yourself are you prepared for everything happening at once. Imagine your car breaking, a dependent getting sick. A spouse losing their job (I recommend not relying on a spouse’s income). Whatever you think could happen to you? What do those expenses add up too?
Those 5 questions are what me and my wife considered when we created a goal for our Emergency Savings Account. We keep ours high so that when it gets tough or we have a bunch of expenses come up at once; we don’t go into debt. If you need help figuring out your finances, feel free to drop us a line or look at some of our other tips and suggestions.