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The Emergency Savings account has become a cliché’. We read about it in financial newsprint and hear it mentioned on every financial talk show. Here’s an opportunity for you to learn how, how-much and where, instead of “you must have one” then the next topic comes up without any explanation of what an emergency savings account is used for, how much, or where the money should be placed.

What is an emergency? Ask ten people get ten different answers.

A short list of examples for service-members where an emergency account could be used, with examples of improper use of an emergency savings account:

Emergencies
  • Immediate discharge from military service
  • Pay withheld because of legal actions, or money for legal counsel
  • Relationship/Divorce forces you to move out of house
  • Short-notice deployment
  • PCS move, which can cost $1,000 or more out of pocket for CONUS, $2000 for OCONUS
  • Deployment
  • Major vehicle repair/ Newer Vehicle
  • Death in family and financial resources needed
  • Partial debt pay-down, never totally deplete emergency savings to pay-off unsecured debts
Not Emergencies
  • Fly spouse to see relatives for the holidays
  • Pay for vacation
  • Give to relative for their emergency
  • On-going support of a family member
  • Buying a newer vehicle, unless the old vehicle can’t be repaired for less than four to five months of new vehicle payments.No excuses, if the old vehicle can be repaired, repair it.
  • Gifts for the holidays
  • Wedding
  • Education tuition
  • Down payment on a house

How much; for most single service-members an emergency account should be minimum one month gross pay. We use gross pay (before taxes and allotments are taken) because 90% of people know what their gross pay is and less than 10% know what their monthly expenses are; remember, keep it simple. For the most part you have job security as long as you continue to meet the requirements. If you’re separating from the military within the next three to four years you need to increase the emergency savings account to four to six months of your gross pay in preparation for your career change.

For a military family who is not separating within the next three to four years, we recommend the same, one month gross pay, because including the benefits, gross pay is pretty good. If you are separating from the military and changing careers, your emergency account should be a minimum four to six months of current gross income.

How to get there, use an allotment from each pay period; we recommend using twenty-four (24) months to get to the proper level, remember to use balance for everything you do with your finances, this is a key for success. Using a tax refund is a great way to give your emergency savings account a quick boost.

Example: Emergency savings account goal is $3200. Take $3200 divided by 24 months equals’ $134 per-month, which is $67 per pay period as an allotment; pretty simple right?

Where to put your emergency savings account, as we like to say, keep it simple. There are several recommended places. An emergency savings account has several requirements.

  1. Must be liquid, meaning you can access your money within a couple of days.
  2. Must be safe, FDIC insured
  3. Must be electronic, not requiring a physical withdrawal but an Electronic Funds Transfer, (EFT) directly into your account
  4. Must provide higher, competitive interest rates that are better than a passbook savings account and most money market accounts
Several large savings accounts meet these requirements, we will list a few but there are others who meet these qualifications. ING Orange, HSBC high interest savings, USAA has a similar account.

Once you have fully funded your emergency savings account keep on saving. We like to use a three bucket approach; let’s explain. Most of the large savings accounts allow you to have several accounts under the same registration and login; so use three.

Bucket #1 is for your main emergency savings account, once fully funded run the over flow into bucket #2: Which may be titled, vacation, new vehicle, wedding. You can then have a bucket #3: Savings for a down payment on a house, or what ever your long-term goals may be. Keep saving, don’t ever stop!

Tip: Always save using balance, savings and debt pay-down are not an all or nothing approach; to succeed you must use balance.

Once you grasp these simple concepts you’re on your way to understanding how powerful financial maturity and discipline can be.
MILITARY MONEY BASICS


TSP Payday - Millionaire
Savings Accounts Credit and Debits
Buying a Vehicle

Buying a House

Separating

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