Building and maintaining an emergency fund is a key to financial readiness for service members and their families. After covering your basic monthly expenses, start an emergency fund. It can save you a lot of stress and debt. Having that buffer allows you to focus on the mission, knowing that you and your family can handle life's curveballs. If an appliance breaks, the roof leaks or your car needs repairs, your emergency fund will provide peace of mind.
Set goals
Set a goal for how much money you want to save for emergencies. A good general recommendation is three to six months of living expenses, although your first milestone could be less. You want to reach this goal fairly quickly, so aim for $500 to $1,000 to start.
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Make a plan
Involve your family in the process. Sit down for a meeting to develop a financial plan. Include the following steps:
- Set weekly savings goals.
- Review your budget and think about how much you can reasonably save per week.
- Start by putting away a minimum of $25 per week, which will get you to $500 in about four months.
- Set up a payroll deduction directly to your savings account.
- Increase the amount in your emergency fund once you've met your initial goal.
You may think you can't squeeze an extra $25 for savings out of your weekly budget. Even if you have a tight budget, you can find small amounts to save. Try the following ideas for trimming your expenses:
- Reduce your interest rate — Contact your credit card company and ask for a reduction. Let them know that you'll be shopping around for a new credit card company if they won't cut your rate.
- Compare insurance rates — Research prices on auto and homeowners insurance premiums, and look into using just one company for all your policies.
- Lower your grocery bill — Make a weekly meal plan and grocery list for smart shopping and use store ads and coupons when you can.
- Make small adjustments — If you've been dining out twice a week, going to the movies regularly or stopping by your favorite coffee shop daily, try cutting back. Go out to eat just once a week and watch the savings add up.
- Review your bills — Take a good look at where you're spending your money and cancel any memberships or subscriptions that you really don't need.
- Save your refund — Instead of spending your tax refund this year, consider putting it into your emergency fund for an immediate savings boost.
- Sell your extras — Take inventory of your belongings and sell extras and unwanted items online or at a garage sale.
- Collect change — Empty your pockets into a container daily. Cash it in monthly to add to your emergency fund. Apply the same concept to dollar bills for faster savings.
Using your fund
Call
Military OneSource at 800-342-9647 to schedule a free appointment with an accredited financial counselor.
Once you've established an emergency fund, make a list of times when you would feel comfortable using it. Some people have difficulty recognizing that it's time to dip into their emergency savings and instead pull out their credit cards, which leads to debt. Once you've used money from your fund, you must set a goal to replenish it through weekly savings so that you can cover the next emergency. Take comfort in knowing that you can provide for your family even in a time of crisis without going into debt.
Learn more about financial readiness by visiting your installation's Personal Financial Management Program or call Military OneSource (800-342-9647) for free financial counseling, education on money-related topics and assistance with budgeting and saving. A financial counselor can confidentially review your situation and recommend how you can take advantage of Department of Defense resources.