Wouldn’t it be great to have peace of mind when your service member is deployed and Murphy’s Law visits? An emergency fund can change a crisis into a manageable situation.
Military pay is a steady paycheck. So you are probably wondering why in the world you would need to have an emergency fund. Why would you stockpile money back when you could be spending on things you need right now? Or maybe you are paying off debt with everything you have extra.
According to Bankrate’s January 2018 financial security index survey, 34 percent of Americans experienced a major unexpected expense over the past year. Unfortunately, only 39 percent of survey respondents said they would be able to cover a $1,000 or more expense using their savings.
Bankrate’s survey also showed 19 percent of Americans would go into further debt by financing an emergency expense on a credit card. Another 12 percent and 5 percent would borrow from friends and family or take out a loan respectively. It’s disconcerting that more than a third of Americans would sink into one type of debt or another, potentially harming their financial well-being.
Life Happens…Are You Prepared?
There are many reasons you NEED an emergency fund and we will explore those in this post. But most importantly it is the foundation of your financial well-being, your financial success in the long run.
When deciding whether or not you should save for an emergency fund, consider what would happen if you lost your job. A job that helped your family stay afloat because the military pay your spouse receives is not making ends meet for your family. On the other hand, one thing is certain about the military and that is your service member will at some point cease to serve. Whether they separate or retire on their own terms or not, it will happen!
Regardless of the situation that would bring your service member being separated or retired, you wouldn’t want to be in this position and not have the means to support your family! An emergency fund becomes vital in which it allows your family something to live on while your service member searches for civilian employment!
You never know what the future will hold at any given moment, so it’s always best to be prepared. Having an emergency fund is extremely important so you’re always prepared to deal with what life brings.
What is an emergency fund?
Sound financial planning is preparing for the future. Therefore an essential component of a solid foundation of any financial plan is an emergency fund.
An emergency fund is money which you purposely set aside to cover any unexpected expenses that may come up. Your emergency fund is also a way to protect your savings. For example, you are saving for a home, a newer car or even a second car. If you had a medical emergency, you will not need to dip into your down payment for either of those to cover the costs. Instead, you will use your emergency fund for that. So, in the long run, it keeps you moving forward with your financial goals even when you face the unexpected.
What constitutes an emergency?
I’m not talking about that 50% sale at your favorite boutique…and it isn’t even a holiday! I’m talking about a true emergency; like a car wreck, a hospital visit, or a leaky roof.
When you get right down to it – it’s something that affects your health, well-being or ability to earn money.
There are other instances where you may feel like something is an emergency – but in truth, it actually isn’t. Dave Ramsey said in his book, Total Money Makeover to always determine if it’s a true emergency for which you would need to tap into emergency funds. Ask these three questions, Is it…
If you can answer yes to these three, the more likely it’s a true emergency and the more it justifies using money from your fund.
Reasons You Need an Emergency Fund
1. Large deductible or co-pay on a health or dental emergency
Many times we think that we are healthy and don’t usually have major medical expenses. Therefore we don’t set aside enough to cover those unexpected expenses.
Even though your service member has their health and dental care taken care of, dependents go through Tri-Care for their care. So depending on whether you live near a military hospital facility or not will depend on what kind of out-of-pocket costs you will incur.
A trip to the emergency room could create a serious financial strain. If you have to have a surgery, for example, you’ll still have to cover your co-payments. You’re probably thinking, “Doesn’t Tri-Care cover everything?” Again, depending on what healthcare facility you are at and which plan you have elected will determine your extra costs – even with Tri-Care.
2. Major unexpected car repairs
“I’ll just use my credit card for repairs if my car breaks down,” is probably what you are thinking is the best way to handle it. But let’s just think about this for a minute. You’re driving cross country for a PCS move and your car breaks down.
Now that doesn’t seem like a big deal, but it is in a small town who only has one mechanic. It just so happens the mechanic doesn’t take credit cards. Not to mention you don’t have enough money in your checking account to cover the expenses. The only thing you know to do is to call your parents, which you dread.
3. Unanticipated travel
A death or serious illness in the family could force you to purchase a last-minute plane ticket at an exorbitant price. If you are stationed overseas, this could be even more.
I’m sure you’re hoping to get a Military Airlift Command flight (MAC), but there is no guarantee there will be seats or enough seats for your entire family. Or there isn’t a MAC flight that will be close to where you need to fly. If this is the case then you are still faced with buying tickets from there to your eventual destination last minute.
You definitely don’t want this big expense lingering on your credit card bill, racking up interest. But you wouldn’t have to worry about it if you had enough cash in an emergency fund to pay your bill quickly.
4. Large Home Repairs
If you have bought a home where you are stationed you could face some major expenses. You will have insurance to cover major expenses. But depending on your deductible, you may have to come up with the cash to cover it.
Not only that, but insurance doesn’t always cover everything that could possibly go wrong. For example, we had to pay to pay quite a lot out of pocket to have our back porch concrete poured again. It had become a hazard after cracking and crumbling.
5. Major Appliance
This is an unexpected expense that never comes at a good time when you own a home. Just when you are doing that load of laundry and you need your daughter’s school uniform for the next day, the washer quits. Or maybe the air conditioner goes out just when a heat wave occurs.
6. Emergency Pet Care
You love your furry family members just like you do your children – well maybe not just like your children. The regular expenses of owning a pet are typically doable because you can budget those in since they are usually the yearly shots. However, if your pet needed a surgery that was quite expensive, would you be able to cover it?
7. Your Identity is Stolen
This is not something anyone wants to face. But a criminal doesn’t care who you are when they want what you have. If your identity or that of your service member is stolen, it might take a while to sort it all out. While you are waiting, you may not have access to your credit cards or debit card. It might even be necessary to freeze your primary checking account to keep everything safe. An emergency fund would be a lifesaver in this case.
8. PCS Move
PCS moves have all kinds of hidden costs. There has not been one PCS move that I haven’t encountered a new expense I wasn’t prepared for.
For example, you may have to pay out of pocket up front for a hotel while you are waiting on base housing. You’re thinking that just putting it on the credit card will be fine because the government will reimburse you later. But the government is ALWAYS so slow in reimbursing. It’s likely that you may be paying the balance of the credit card before you get your reimbursement. If you can’t pay the balance when it comes due, then you are actually paying more because of the interest on the balance you couldn’t pay.
9. Loss of employment
As a civilian, this is usually the primary reason you would need an emergency fund. But your service member is in the military so you think this doesn’t apply. However, there will come a time when your service member will be separated from the service. If it is unexpected, then it could put you in quite a financial conundrum.
10. Funeral Cost
Many funerals cost more than $10,000. Of course, you don’t ever want to think that you will have to face making arrangements for a loved one, but we never know when it’s our time. Your service member will have benefits to help with this, but the military doesn’t cover dependents. It’s a cost in that case which would be an unexpected expense.
11. Head off Arguments on the Home Front
You’re probably thinking, “How in the world can having an emergency fund head off arguments?” When unanticipated costs come up, it puts a lot of stress on the home front. Especially when you know you don’t have enough money to cover those expenses. This, in turn, can lead to undo stress and arguments.
12. Peace of Mind
It’s no surprise that when life presents an emergency situation, it threatens your financial well-being and causes you stress. So it stands to reason if you’re living without the emergency fund safety net, you’re living on a “financial” ledge.
A simple resolution is to keep an unanticipated expense from bankrupting you or putting you into debt is to build up an emergency fund.
Even when you are in debt already, it is still smart to put some money away…even if it’s only $10.00-25.00 a paycheck. As personal finance expert, Dave Ramsey says building a $1,000 emergency fund is the first “baby step” toward becoming debt free.
The emergency fund will make it easier to make good financial decisions because you won’t worry about Murphy’s Law and what could happen unexpectedly. Especially during those times when your service member is TDY or deployed.
Having an emergency fund will give you confidence and peace of mind. Besides life happens, so you need to be ready!
Do you have an emergency fund? How did you start one even on a tight budget?
Elizebeth is a seasoned military spouse, educator, mentor, and mom to a blended family of four children. She is dedicated to helping fellow spouses create a life they love. Elizebeth is the creator and founder of Home Anchor Following Seas where military spouses will find advice and information to help navigate the crazy military lifestyle.