Financial Education
Saving for the unexpected
Financial advisors recommend that service members have three to six months of living expenses set aside for emergencies and the unexpected. This may seem like an unachievable goal, especially in tough economic times. But with a little planning and discipline, your savings account can grow faster than you'd think. Here are a few ways to save money and make those unexpected expenses less stressful.
Ways to save
Bonus money
Most of us receive "extra" money a few times a year. This could be tax refunds, bonus pay, or birthday and holiday gifts. Even though it's tempting to spend this money on something you want, think about putting it into your savings account to use on something you need. It may not be as exciting right now, but these bonus deposits will help you achieve your savings goal much faster.
Increased income
The most common source of additional income is a pay raise. Military families, however, can also receive a monthly income boost from specialty pays (e.g. Hazardous Duty) and tax-free income. Putting this money directly into a savings account is a quick and easy way to see real results.
Nickels and dimes
You can save a bit of money each day that, when saved over the course of a year, can add up quickly:
- Clipping coupons can save you $250 a year.
- A "change jar" can easily net $100 or more each year.
- Increasing insurance deductibles can potentially save hundreds of dollars each year.
- Eliminating two fast food meals per week can save more than $500 each year.
If you go through your budget and find the small expenses you can cut, you might be surprised how quickly you can increase your savings.
Deposit allotments
If you decide to set aside money from your paycheck, consider doing so by allotment. This makes saving automatic and impulse purchases less likely. "Paying yourself first" through regular deposits is a well-respected strategy for making your personal wealth, and financial health, a priority.
Where to save
Where you save depends on what you want to do financially:
- The best place for emergency funds is a basic savings account—the money is readily available, they usually pay at least some interest, have no penalty for withdrawal, and are usually insured or guaranteed up to a certain amount. This makes it easy to get the money you need for something like an emergency car repair or higher-than-usual utility bill.
- Money market accounts are similar to savings accounts—they are offered by a bank, are insured, and there is no penalty for full withdrawal—but offer a higher rate of return. The main drawbacks are the minimum deposit requirements and limited withdrawals.
- For longer-term savings, Certificates of Deposit offer a higher interest rate than a savings account while also being insured against loss. The downside is that they are for a certain term (six months to several years) and incur penalties for early withdrawal. Some also have a minimum amount qualification.
- Other longer term and safe ways to save include money market mutual funds, Treasury bills, and bonds. There are many different types and different qualifications, so you may need to discuss your options with an accredited financial advisor to find the ones best for your situation.
- Your best chance of saving for the long term is through the Thrift Savings Plan or your spouse's civilian retirement plan (especially if his or her employer provides matching funds). While hearing about massive drops in the stock market may create a sense of apprehension, as long as you take a long-term, consistent approach, you will have the odds in your favor.
Whether it's putting a few dollars away each week, spending a little less, cutting out extra purchases, or practicing the strategies we've laid out here, it all adds up over time. And having adequate emergency savings allows you to focus on your family's needs during a time of crisis, rather than worrying about how you'll find the money to handle it. Simply put, your financial success tomorrow depends on what you do today, so develop your strategy and put it into action.
About the author
Karen Von Der Bruegge is the Chief Marketing Officer for Pioneer Services, the Military Banking Division of MidCountry Bank, a company that provides financial services and education exclusively to the military community. She is both a Certified Credit Report Reviewer and Identity Theft Prevention Specialist, has managed award-winning marketing campaigns, and serves on the board of USA Cares, a non-profit that assists military families.
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