Author Topic: Emergency Funds and the Military  (Read 3138 times)

sibamor

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Emergency Funds and the Military
« on: September 27, 2012, 10:42:54 PM »
Status:
Family Size: 2 Adults
Age: Mid 20's
Occupation: Military Officers, 1 Active Duty (good money)/ 1 National Guard (not so good money)

Income 2012:
Spouse: 49k+, 3700+/mo*
Myself: 11k (National Guard Officer), varies by month of drill/additional training/annual training

Budgeted Expenses: (Hit under budget monthly 90% of time, if not under budget 100% for year)
HOUSING      1413.50
   
AUTO      322.47

SAVING      470.00

DEBT      400.00

FOOD      680.00
   
HOUSEHOLD   414.03
         
TOAL      3,700.00

SAVINGS: 5,700
CHECKING: 5,500
ROTH IRA: 6,600


*Right now spouse makes $1000/mo more due to recent promotion.  I access budget off of 1 higher income for pay rate in January.  Second/Third Income and promotions are considered extra positive cash flow for year and gets applied to debt/savings/unscheduled surprises (just bought our house, trying to smooth out rough spots and rebuild our current savings). Will absorb promotion funds into 2013 budget.


Debt Breakout:
Personal Loan: principal $23,886 at 2.25%, monthly payment $400.  Consolidated student loans with parents. Reduced from 8% for me, increased from 0.9% savings for them.

Mortgage: $196,000 at 4.0%, monthly payment $955. Minimum payment for now, plan on attacking once personal loan is done. *Snowball Method!

CC: 0 balance, 4k limit, pay in full 2x monthly


Goal:
Debt free from parents loan ASAP. Then utilize extra funds to divide between mortgage principle and savings/investing.  Current $400/mo payment towards debt. Jan 2013 changes to $800/mo budgeted and my $500 drill pay for $1300/mo debt payment. Forecast is June 2014 no loan.  Always plan on living off of 1 income. 2nd income/3rd income is excess for mortgage/suplimental savings.
2016 minimum term of service up.  Assess then none/one/both continue with military career. Identify where we can minimize expenses in next 4 years and make major course decisions come 2016.


Question:
Given the employer is Uncle Sam so our job security is 99.999% until 2016.  What longest projection model would you choose given these 4 scenarios (IE fed txes/expenses savings) for EMERGENCY FUNDS comfort?

1. Starting Jan 2013, $1300/mo payment, keep all current E FUNDS at 10k. Payoff EST 6/2014. total interest 2090

2. Starting Jan 2013, $1300/mo payment, use all but 2k E FUNDS (est 10k) towards loan. Payoff EST 10/2013. total interest 1860

3. Starting Jan 2013. $1890/mo payment (make no savings deposits), use all but 2k E FUNDS (est 10k) towards loan. Payoff EST 6/2013. total int 1820

4. Starting Jan 2013. 1890/mo payment (make no savings deposits), use 5k towards loan, 5k E funds. Payoff EST 9/2013. total int 1883

*In long run I've already avoided close to 12k in interest on this loan.

Note: Military guaranteed income. Only true concern is home/auto incident. Commutes are short (barely drive anywhere). Military Medical benefits that would prevent most medical costs. Cars in good working order. All expenses are accounted for and budgeted for in 2013 with 4700/mo, No standard of living change, mostly saving/debt addition.  Can live off of 2500 at worst case scenario.




The idea of getting to a 2.5k expenses/2.2k in savings situation is exciting!! If I can manage to get full time employment in addition to the Guard we can be at 70% SAVINGS!!!!!
« Last Edit: September 28, 2012, 08:52:36 AM by sibamor »

Kriegsspiel

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Re: Emergency Funds and the Military
« Reply #1 on: September 28, 2012, 06:29:03 AM »
I would just make sure you have a good sized emergency fund by the time you can ETS.  I figure you don't have much to worry about during your initial obligation, but after that I would have it just in case.  I was glad I had one when I got out, because I was unemployed for a few months.

I would just invest the money now (I didn't use a TSP, but I wish I had), and take out a chunk for an EF in a few years when your initial obligation is getting near.  If you are well-diversified you should have an asset that is doing well.

corcoran

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Re: Emergency Funds and the Military
« Reply #2 on: September 28, 2012, 07:23:12 AM »
Sounds like you have run numbers to help pay off that loan. Personally, I wouldn't stop contributing to TSP. I don't know what the match is for you, but for FERS employees putting in 5% means you get a 5% match -- instant free money.  Considering your EF-- you have a stable income, and no children, and it sounds like if it really hits the fan parents can help out at a low interest rate of 2.25%.  If you're comfortable with 5K EF, I'd go for it.

I noticed you didn't mention cutting except from savings, but then mentioned you can live off of a 2500 budget if necessary. I know you didn't ask, but why not cut from your current expenses?
680 for food? That's $11 per day per person and seems a bit excessive... you can fix this!

sibamor

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Re: Emergency Funds and the Military
« Reply #3 on: September 28, 2012, 08:45:57 AM »
Haha, yeah the food looks scary.  That's food/entertainment budget.

Food/Entertainment 680/Mo
450 food (7.5/day/person)
150 activities (dinners, movies, redbox rentals, museums)
80 booze (1 a day habit each)

Household 314/mo
Clothing         50
Furnishing      50
Gifts               80
Miscellaneous 234

Working on convincing the wife to help trim expenses and get aboard the thrifty train.  High standards for food (Ground Buffalo $9/lb instead of Ground Beef $4/lb), regularly making pies/cookies/cakes for coworkers, and friends over for dinner all afforded on 450/mo. Also have a horse we lease (she won't give that up, we roughed it for two years so she can afford her love of riding).   Plus this is all planned for worst case scenario. August 2012 was $631 out of the 680 allotted, extra $50 went towards E FUND. So in reality it looks a lot better than 7.50/person/day if needed to.

Our other budgets subcategories works as a safety net.  Want to buy a clothes $80. Fine but that leaves only $20 for the next month. Hence the over monthly budget sometimes, but always under for the year.

« Last Edit: September 28, 2012, 08:48:10 AM by sibamor »

Nords

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Re: Emergency Funds and the Military
« Reply #4 on: September 29, 2012, 11:27:39 PM »
3. Starting Jan 2013. $1890/mo payment (make no savings deposits), use all but 2k E FUNDS (est 10k) towards loan. Payoff EST 6/2013. total int 1820
4. Starting Jan 2013. 1890/mo payment (make no savings deposits), use 5k towards loan, 5k E funds. Payoff EST 9/2013. total int 1883
It sounds as if your biggest risk would be having to buy a last-minute plane ticket to visit family if they had a crisis.  You could go with option 3 or 4, whichever one helps you sleep better at night.  Worst case would be putting a large expense on a credit card and then clamping down on lifestyle for a month or two until it's paid off.

Do either of your commands support advance pay "for a good reason"?  Some commands take this request as a sign of financial irresponsibility, other commands are more accustomed to trusting the servicemember's judgment.