Building an emergency fund might seem like the last thing to add to your to-do list, but having one is essential for military families. Besides the fact that you lose money on every PCS, there are always going to be unpredictable events, up-in-the-air plans, and those random moments when you need some extra cash – quick. The truth of the matter is that plenty of mil spouses make mistakes with creating and maintaining their emergency funds and don’t even know it. Let’s break down seven costly mistakes and how you can avoid them.
Underestimating Your Emergency Fund
A lot of military spouses think a few hundred bucks will cut it. The truth is, you should have six months’ worth of expenses in cash at all times. That’s a lot of money to come up with all at once, but think about it? What happens if you need to cover rent, groceries, utilities, and a car payment? Without this cushion, an unexpected expense could quickly become a financial crisis. Imagine an unexpected PCS or an unforeseen deployment.
The goal here isn’t just to have the money available. It’s to make sure you’ve got enough to keep you afloat without relying on credit cards or loans.
So how do you start?
Start by calculating your monthly expenses, including everything from rent to groceries, and aim to save at least three times that amount, gradually building up to six months’ worth. It might seem daunting, but setting up automatic transfers to a dedicated emergency savings account can help you reach your goal without much effort.
Forgetting Some Expenses
When planning your emergency fund, it’s easy to overlook certain expenses. But these “forgotten” costs can add up quickly. Think of car repairs, school supplies, and uniforms. Sports team dues, pet care, and even personal care all add up. These expenses might not happen every month, but if you don’t budget for them, you’ll be left scrambling when they do crop up.
For instance, during a PCS move, you might need to pay for temporary lodging, extra gas, or even last-minute travel arrangements. By anticipating these costs and including them in your emergency fund, you can avoid the stress of scrambling for cash when they arise.
The best way to approach this is to keep a list! Write down all possible expenses you might have in any given year and the use that as a guide to help you determine how much to save. It’s always better to overestimate and have a little extra than to find yourself short in a pinch.
Not Adjusting for Life Changes
Military life is always changing, and your emergency fund should reflect those changes. New duty station OCONUS? Account for it. You got a new job? Adjust your savings goals.
What if you’ve been living in San Diego and now you’ve got orders out east? The cost of living is going to be different and even if you’re shopping at the commissary, your food bill costs are going to change. This means your emergency fund should be larger to cover these increased expenses.
Regularly reviewing and updating your emergency fund to match your current lifestyle and financial obligations is crucial. Make it a habit to reassess your savings whenever a significant change occurs, such as a new deployment, a job loss, or even a promotion. This ensures that your fund is always aligned with your current needs, providing a more accurate and effective safety net.
Mixing Emergency Savings with Other Savings
Another common mistake is mixing your emergency fund with other savings goals, like for a vacation or a new car. This can lead to accidentally dipping into your emergency money for non-emergency expenses. To avoid this, keep your emergency fund in a separate account. This way, you won’t be tempted to use it for a spur-of-the-moment purchase or a planned expense that doesn’t truly qualify as an emergency.
Keeping your emergency fund separate also helps you track its growth and ensures that the money is readily available when you need it most. Consider using a high-yield savings account for your emergency fund to earn a bit of interest while still keeping the money accessible. The key is to have clear boundaries: emergency funds are for emergencies only, not for planned expenditures or “wants.”
Relying on Credit Cards or Loans for Emergencies
As a rule, credit should only be a last resort, used when absolutely necessary. Credit cards and loans might seem like a quick fix, but they can lead to more debt and extra financial stress. This is especially true if your credit cards have high interest rates. They can turn a small problem into a big one because interest piles up, and it creates a cycle of debt that’s hard to break. That’s why it’s better to have a cash-based emergency fund that you can tap into without incurring additional costs.
Having a well-funded emergency account can provide a sense of security, helping you avoid the pitfalls of relying on credit and keep your financial situation stable. Even better, relying only on cash reserves gives you more control over your financial decisions without the pressure of impending interest payments or the temptation to overspend. If you do end up using a credit card for an emergency, prioritize paying it off as quickly as possible to avoid long-term debt.
Not Replenishing the Fund After Using It
Once you’ve dipped into your emergency fund, you have to refill it! If you don’t, then all the hard work that’s gone into developing it will be for nothing. Maybe you used part of your fund to cover an unexpected car repair. As soon as you can, adjust your savings plan so you can build up your fund as quickly as possible.
Even if you can only add a small amount each month, it’s important to rebuild your safety net. Set up a plan to consistently add to your savings, making it a priority in your budget. This habit keeps your financial safety net intact and ready for whatever comes next. You can set up automatic transfers from your checking account to your emergency fund to make saving easier.
Making Your Fund Hard to Access
Your emergency fund needs to be easily accessible when you need it. While it’s nice to earn interest, having all your money tied up in long-term investments can make it hard to access. In an emergency, you don’t want to worry about penalties or waiting periods to access your funds.
The key is to balance earning potential with accessibility, so you’re ready for any surprise expenses. You might consider a tiered approach, where part of your emergency fund is in a high-yield savings account (for better interest rates) and part in a regular savings account (for quick access). This way, you can maximize your savings’ growth while still having immediate access to funds when needed.
Wrapping It All UpFor military spouses, an emergency fund isn’t just a financial cushion—it’s a lifeline. It provides stability and peace of mind, helping you handle the uncertainties of military life. By avoiding these seven mistakes, you can build a strong emergency fund that protects your family and secures your financial future. Careful planning, regular updates, and disciplined saving make all the difference in staying prepared and resilient. Remember, the goal is to have a safety net that can cover any unexpected expenses, giving you the confidence to face whatever comes your way. Whether it’s an unexpected PCS, a deployment, or an emergency at home, a well-prepared emergency fund can make all the difference.