A Service Member’s Guide to Building an Emergency Fund

An emergency fund is important security for you and your family. Military service members can take the following steps to build theirs.

Few businesses prepare for emergencies better than the U.S military. It makes sense! Emergency is basically why the military spends its time training — the biggest and worst emergency to befall a country or its people. Between robust and accessible medical treatment, SGLI, retirement, and wills, the average military troop and their family is better set up for contingency than many others in the U.S., and even the world.

Even so, it’s worth having an emergency fund. What’s that? Three months worth of income. To put that in math terms, if you make $5,000 per month, you’ll want $15,000 for your emergency fund. If you’re married and you and your spouse each make $5,000 per month, you’ll want an emergency fund of $30,000 dollars.

Normally the emergency fund is for unexpected health or household burdens that pop up in the course of things. People being fired, or let go from their profession unexpectedly. Of course, in the military, that almost never happens: and there are robust protections in place for people who are sincerely trying to do the right thing, even if they’ve messed up.

To be clear it is almost impossible to be taken by surprise in the military in a way that would place a financial burden on your family, and many, many resources on which to draw if the worst does happen. For unexpected deaths in the family and for financial help there’s the Red Cross. When financial obligations appear unexpectedly, there are organizations that step in to help with low interest loans, grants, or gifts.

But you don’t want to have to depend on the charity of others; you want to be responsible and self-sufficient.

#1 Bonus Money

When you sign, and when you re-up, you’ll often get a taxable bonus. This is a very simple and straightforward way to establish an emergency fund. Now, by definition, an emergency fund has to be easily accessed–this is also commonly referred to as “high liquidity”. You can’t put it into any type of fund or bond that won’t mature before 6 months or a year. But you can put it into the stock market if you’d prefer that it have a chance to make some money. Having it placed in a low-risk ETF is often a smart way to grow the money while maintaining liquidity. Another option is to open a high-yield savings account–these can often range from 3% - 5% APY.

Take your monthly income, triple that number, and take that much out of your bonus and place it into low-risk stocks, ETFs, or high-yield savings.. If you need it in an emergency, and since your emergency fund has high liquidity, you’ll be able to easily access it.. Remember, high-risk investments such as cryptocurrency or high-volatility stocks and low-liquidity investments like real estate or your car are not part of your emergency fund.

#2 Gifts and Holidays

Especially suitable for younger troops, folks who join between 17 and 21 or so: there’s a good chance you’ll get checks from family for your birthday or the holidays. Whether it’s a hundred bucks or a thousand, that money can go toward building your emergency fund faster. Once you have that fund built, it’s much easier to maintain it with every promotion. Get a check from grandma? Boom, emergency fund.

When one considers that the fund — whether it’s in stable stocks or in a savings account — should also be generating a little passive income, it becomes easier to stash money there.

#3 Budget a Percentage of Your Monthly Income

You already spent your bonus and you don’t have a rich uncle moneybags to help build an emergency fund. So be it! Start small, and — like with all long-term projects — take $50 or $100 out of every paycheck and put it into that fund. Over time, as your salary grows, so too will the emergency fund. It may take a few years to get it where it needs to be ($100 out of each paycheck only means $1200 a year), but careful and steady financial planning will lead to better financial outcomes. You’ll discover that the more and better you prepare for life, the better your financial habits, the fewer emergencies you’ll encounter. This is one of life’s great paradoxes.

This is a great baseline for building your emergency fund outside the military. You can add to it with bonus money, or gifts.

You never want to gamble with your emergency fund: it’s a hedge against something terrible and unexpected happening. Two weeks after I moved into my first house, the water heater busted and flooded the basement. On top of the water damage, I ended up shelling out $1,200 for a new one, just after I’d used my VA Home Loan to take on a 30 year, $375,000 mortgage. Emergency funds are like hand grenades: better to have and not need, than need and not have.

Good luck saving!

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