An emergency fund is a critical part of financial security, especially for military families. Having several months of living expenses saved can make all the difference when faced with unexpected costs, providing peace of mind no matter where life takes you.
The Importance of an Emergency Fund
For many families, the concept of an emergency fund might be unfamiliar. Before 2016, I had no idea what an emergency fund was—let alone how to build one. Sure, I had a “rainy day” fund, but the idea of saving several months of living expenses in case of a real emergency was a game-changer for me. After doing some research, I learned not only how to create and manage an emergency fund but also the importance of sinking funds.
What is a sinking fund? A sinking fund is money set aside for specific expenses or upcoming costs, like vacations, car repairs or holidays. It’s a proactive way to save for predictable expenses separate from your emergency fund. When an unplanned expense arises, you don’t want to get caught robbing Peter to pay Paul as my mom would say.
How to Start and Grow Your Emergency Fund
- Set a Goal: The first step is to determine how much you need. A general rule of thumb is to have three to six months of living expenses saved. Start with a smaller goal, like $1,000, and build from there until you have one month of expenses, from there set your big goal.
- Start Small, Be Consistent: Don’t be discouraged if you can’t contribute large amounts at first. The key is consistency. Even $25 or $50 a month adds up over time. Automate your savings by setting up a direct deposit to a high-yield savings account to make it easier.
- Make it a Priority: Treat your emergency fund like a necessary bill. Budget for it just as you would for rent, utilities, or groceries. This will help you stay disciplined and committed to growing your safety net.
Emergency Fund Success Stories
Having an emergency fund has made a huge difference for me during some of life’s unexpected events. For example, during a PCS move, the moving company lost a critical piece of furniture. Thanks to my emergency fund, I was able to replace it right away and replenish the money once the reimbursement—inevitably delayed—came in.
Another time, our air conditioner broke in the middle of summer in the South. If you’ve ever experienced that, you know it’s a life-or-death situation! My emergency fund was a lifesaver, allowing us to get it fixed quickly without having to scramble for money or take on debt.
The key is to have a plan to replenish your emergency fund as soon as possible after using it. And just as importantly, avoid dipping into it for non-emergencies. It’s a fund for true crises, not for everyday expenses.
Effective Savings Strategies for Military Families
Military families face unique financial challenges, particularly with the unpredictability of deployments, relocations, and variable incomes. But that doesn’t mean you can’t achieve financial stability with a strong savings strategy.
- Budget for Irregular Income: If your household income fluctuates, base your budget on your lowest-earning months. This way, you’ll ensure you’re living within your means, and any surplus during higher-earning months can go directly into savings or your emergency fund.
- Utilize Sinking Funds: As mentioned earlier, sinking funds can help you prepare for known expenses, such as car maintenance or holiday spending, without having to dip into your emergency fund.
- Set Aside Bonuses or Extra Income: Whether it’s tax refunds, deployment bonuses, or any unexpected income, consider putting at least a portion of it into your emergency fund to give it a boost.
The Best Banks for Emergency Funds
One of the most important aspects of an emergency fund is where you store it. A high-yield savings account (HYSA) is the best option, as it offers higher interest rates than a regular savings account, allowing your money to grow faster over time.
Here are some of the top banks offering high-yield savings accounts for military families:
- SoFi: This online bank has some of the best scores and is great for large deposits and w is at the top of many HYSA lists.
- Amex: I bet you didn’t even know that American Express offered more than credit cards.
- Marcus by Goldman Sachs: This online bank offers one of the best high-yield savings accounts with no fees and a high interest rate, making it a great option for growing your emergency fund.
- Ally Bank: Ally is another online bank that offers competitive interest rates with no monthly fees. It’s easy to set up, and funds can be transferred quickly when emergencies arise.
- Capital One 360 Performance Savings: Known for its high interest rates and easy access, this account is great for building an emergency fund with regular contributions.
Why Choose a High-Yield Savings Account?
High-yield savings accounts are superior to regular savings accounts because they offer higher interest rates, allowing your emergency fund to grow passively over time. While regular savings accounts at traditional banks may offer interest rates as low as 0.01%, high-yield accounts can offer rates up to 4.00% or more, depending on the bank and the market.
For example, if you have $5,000 in a regular savings account earning 0.01%, you’ll earn just 50 cents a year in interest. In a high-yield savings account with a 4.00% interest rate, you could earn $200 a year—money that can help grow your emergency fund faster and provide a bigger buffer during financial crises.
Building an emergency fund is essential for military spouses and families, providing the financial safety net needed to weather unexpected challenges. Whether it’s an unexpected PCS cost, home repair, or sudden medical expense, having three to six months of living expenses saved can offer peace of mind and financial stability.
By starting small, staying consistent, and choosing the right tools—like high-yield savings accounts—you can build and grow your emergency fund, ensuring that you’re prepared for whatever life throws your way.
So, take control of your finances today and start building your emergency fund. Your future self will thank you!