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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:
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.
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.
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