Emergency Funds: The First Step to Financial Freedom
Picture this: You have a great assignment in an awesome city, the kind many military families dream about, and you and your spouse are living your best lives. You do it all — go out to eat, explore the city and catch all the big games.
A "Live It Up Mentality" Backfired
"Why not live it up?" you might think. After all, if you pay your bills on time, you might not realize that you're living paycheck to paycheck. Then, everything changes and you're blindsided by the unexpected. Perhaps your water heater floods your home. Or you get back to your car after one of those fun nights out and it won't start.
In my case, a family member passed away and I needed to travel cross country for the funeral. Not attending was not an option. But we hadn't budgeted for emergency travel. We spread our credit cards out on the kitchen table, checked the balances and pieced together enough money for a plane ticket. This solved the immediate crisis, but now we had higher credit card balances.
So much for living it up! Life throws curveballs, and sometimes those curveballs cost money.
Don't Be Like Us — Build Your Safety Net
That's where an emergency fund comes in — it's your financial safety net, your peace of mind when the unexpected happens.
An emergency fund is simply money set aside for unexpected expenses: car trouble, emergency travel, medical bills, you name it. Experts recommend setting aside three to six months of living expenses, but an ideal emergency fund will differ based on your needs.
How to Build Your Emergency Fund (Even on a Budget)
- Start Small: $25 per paycheck adds up over time.
- Side Hustle: Pick up a part-time gig to boost your savings.
- Sell Stuff: Have belongings you don't use? Turn them into cash!
- Cut Back: Temporarily reduce nonessential spending (eating out, subscriptions, etc.).
- Tax Refund: Allocate a portion or all of it to your savings.
- Automate Contributions: Set up automatic transfers to your savings account — out of sight, out of mind!
Remember: Your emergency fund should be:
- Separate: Keep it in a different bank account than your everyday spending.
- Accessible: Make sure you can withdraw funds easily when needed.
- Safe: Avoid risky investments — this money needs to be there when you need it.
A Step Toward Financial Freedom
You can work with a personal financial manager or counselor to understand your options and develop a plan to fund your emergency savings. Reach out toyour nearest installation and make an appointment with an expert who can help.
As you reach new milestones and complete your Service's financial readiness training, look to the Office of Financial Readiness and your Service for additional resources. You can also follow @DoDFINRED on Facebook, Instagram, LinkedIn, Xand YouTube and download the free DoD financial education app, Sen$e, for financial tips on the go.
Dorothy is a writer and editor who lives in Virginia with her retired Navy husband.