Defense downsizing means big changes for America’s career military. As a Financial Advisor for military families, I speak with folks daily who share concerns about what the future holds in terms of career advancement, involuntary separations and changes to benefits. There are several things you can do to be proactive about what may be coming down the pike.
When I speak with my clients, one of the first – and most important messages – I share with them is the need to have a robust emergency fund on which to build their financial foundation. In light of today’s uncertain environment for military families, having an emergency savings fund is even more important.
Pre-recession, a typical emergency fund should have contained three to six months of your current salary. Today I suggest a much larger number based on your particular circumstances, but 12 to 18 months is not atypical. Determining the number of months really revolves around factors like does the family have more than one income, how hirable are you, and what is your comfort level with financial risk. Having an objective third party participate in these discussions can be very helpful in sorting through these factors.
You may wonder how in the world you would be able to put that much away. Unfortunately, there are no magic bullets. It is about consistency and discipline. Just do it. Do as much as you can each month until you’ve reached your goal and hold yourself accountable for making it happen.
Here are some tactics to get you started.
First, make a list of your monthly obligations. In addition to listing regular bills such as utilities and insurance payments, be sure to include other regular costs – including groceries, household items, transportation costs and miscellaneous expenses. You’ll want to have a realistic picture of what you need in order to get by each month.
It may be difficult to carve from your paycheck to place money into an emergency fund, but you can start small – creating a direct deposit to a new savings account helps. Even beginning with $10 or $20 on a regular basis can set you on the right track. You can gradually increase the deposits as you’re able.
You may be tempted to simply place your emergency fund in a separate checking account, but to make the money a little more difficult to access, look for interest bearing savings accounts or money market accounts. Use an Internet search to locate the best interest rates, but be sure you choose a bank or financial institution that is FDIC-insured.
Finally, once you have met your emergency savings goal, continue the habit of adding money to the savings account every month. I have found that families who don’t continue the monthly savings habit will invariably redirect those monthly funds elsewhere. Then, when an emergency inevitably occurs, it will be a painful process to rediscover those monthly dollars in your budget. You will be better served by annually taking savings over your goal and redirecting them as a lump sum to a short-term goal, eliminating some debt, or investing the dollars.
By regularly contributing to an emergency fund, you’re preparing and protecting yourself and your family. The buffer you create gives you options and time to overcome financial hardship and unexpected career and life changes. As a bonus, you’ll feel better about your overall financial picture. The piece of mind can almost be worth more than the actual dollars saved.