Q&A Military Emergency Funds: Where to Keep, How Many Accounts to Have | Military Money Manual Podcast Episode 51

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Justin, an Air Force captain, reached out to ask: “How do you organize your savings accounts?”

Some ideas co-hosts Jamie and Spencer discuss are using separate accounts, bucket accounts, a spreadsheet, or an app like You Need a Budget (YNAB).

Automate as much as you can and make your financial life as simple or complex as you need to. Simple is usually the best option.

Q&A or “Question and Answer” episodes are shorter and designed to answer a single listener question.

If you have a question you would like us to answer on the podcast or just need some extra guidance and help with your military money, please reach out on instagram.com/militarymoneymanual or email mmm@militarymoneymanual.com

Military Money Manual Podcast Episode #51 Links

• Free 5-day course to maximize your travel benefits and learn all about military credit cards
• The Military Money Manual book
• Amex Platinum card

Outline of Episode:

Spencer and Jamie answer a listener's question about how to organize emergency funds and savings accounts

Military Money Manual Podcast Episode #51 Transcript

[00:00:24] Jamie: Hello, welcome to the Military Money Manual Podcast. I'm Jamie. I'm here with the founder and owner of MilitaryMoneyManual.com. Spencer Reese. We are together again in Orlando. We should have some music in the background, I think for that too. Together again in Orlando.  we are recording live in Spencer's hotel room.

It's nice to be together again, 2 times in the last couple of months. Yeah. That's a lot of fun.

[00:00:48] Spencer: We just finished up a super cool boys' trip out west where we went whitewater rafting and did some other really fun stuff in the national parks. Now we get to hang out at a financial nerds conference called FinCon or Financial Content Convention. I'm not sure actually. 

[00:01:10] Jamie: Well, financial nerds abound and we fit in. Yeah. Today we wanted to do an episode where we answer reader questions. So let's start out with one from Justin. 

Spencer, what did Justin want to know about today?

[00:01:20] Spencer: So, Justin wrote in on Instagram, which is a great way for the youth to reach out to me.

I guess people don't use email anymore, but if you want to it is Spencer@militarymoneymanual.com or info@militarymoneymanual. 

Justin said, “Spencer, I love the series and book so far.” That's my book, The Military Money Manual. He continues, “I'm a captain in the Air Force and had a question, how do you organize your savings accounts? Do you just have your emergency funds in one and then another for saving for larger purchases, trips, car down payments, house down payments, etc, or do you leave these funds in your checking account? If you already have a podcast on this, then which one should I dig into?” 

Well, Justin, we didn't have a podcast on this.

[00:02:04] Jamie: Oh, we do now. Here you go.

So, Justin, I think what I would start with to answer your question is I definitely recommend having a separate account for your especially emergency fund or any big goals. If you're saving up for a house down payment or a big vacation or anything like that, I would recommend getting those funds separate.

There are a couple of different techniques of how you separate them. Having a separate checking account and a savings account, or more than one savings is a great way to do it.  There are also banks like Ally Bank which is an online bank that has what they call “buckets”. So inside the savings account, you can have different pots or buckets of money toward different goals.

It could also be one savings account with a spreadsheet where you track each deposit that goes in there towards a certain goal. But maybe the easiest way, if you're just starting out is to have four or five different savings accounts with a bank like USAA or Navy Federal that's not going to charge you any fees.

You definitely don't want to do it if there's a fee for activity on the account, a minimum balance, a monthly maintenance fee, or anything like that. So pick a no-fee-free savings account. You're not gonna make any money off it, but that's okay, especially since your emergency fund is just there as more of insurance.

Um, and the last thing I'll say is there are also apps that can do a similar method of keeping the money separate for you if you wanted to keep it all in one account. We've talked about the You Need A Budget, YNAB, app before. So in YNAB, they don't care what account the money is in because you'll allocate all the money you currently have toward your goals.

So probably starting out, I recommend separate accounts like one checking account or two checking accounts, and a couple of savings accounts per goal. What do you think? 

[00:03:38] Spencer: Well before I talk about what I think. How do you do yours personally? 

[00:03:42] Jamie: I use the YNAB app, the You Need A Budget app, and I just have my goals and all my accounts in there.

It's linked to it through a secure bank-level encryption technology kind of thing played.  So I allocate each dollar I have towards the goal and it doesn't care what account it is in. So if I have a credit balance on my American Express Platinum Card, for example. That $300 credit is viewed just as budgetable as $300 in my checking account, right?

So they don't care what account it's in, it just goes towards a goal. But you have to be careful about not spending it and not borrowing from that line item of your budget if it's not separated smartly.

[00:04:22] Spencer: So you just have a checking account and a savings account, then? 

[00:04:25] Jamie: The one checking account, one savings account plus investment accounts.

Yeah, so our emergency fund is not in USAA, it's separate from our savings account. But if I were to want to keep everything at one bank for simplicity's sake, I would probably do one checking account, one short-term savings, one long-term savings, and one emergency savings or something like that.

In the past, I have had six, or seven savings accounts. One for buying the next car, house down, payment, emergency savings. I had just had a separate account for each of those, so that was pretty easy to track. Low workload when you just have a separate account to send the money to.

[00:05:03] Spencer:  So the way I do it is I have a primary checking account for my daily or weekly purchases. So when I was on active duty, all of my paychecks on the first and 15th would all flow into that account.  Then all my bills, all my credit cards, everything would be paid out of that account as well.

But then for larger, fixed expenses, like rent or a mortgage, I would take money out of the checking account and set it aside into another checking account. So that way I knew that I wouldn't get to the end of the month and not have enough money to cover my rent.  I would just break it up.

When I was in Hawaii, my rent was ridiculous. It was $4,000 a month. It was actually 3900. So it broke down into $1,950 per paycheck. So on the first, I would just kick $1950 into that separate long-term expenses checking account. Then on the 15th, again, another $1950.  Then on the next day of the month or the end of the month when the rent was due, it would all just come out of that account and it was all automated.

Getting back to your question, Justin, I definitely think that your emergency fund especially should be in a separate account. A lot of people like Jamie like to hold it at a completely separate institution, so you don't even see it day to day.

And I think that's a great way to do it. You know, if you primarily use USAA, maybe you have a Navy Federal account or an Ally account, or any kind of online bank account. You know, there's Marcus by Goldman Sachs, which typically have higher interest rates, and just keep your emergency fund parked there.

And then you're not tempted to spend it cause you don't see the money and it's a lot easier.

[00:06:35] Jamie: Anything that's either FDIC insured or insured by the credit union equivalent. So my emergency fund right now is actually at T-Mobile Money, their bank for T-Mobile customers.

Yeah. It's earning 1.25% or something like that right now at the time of the recording. Better than my 0.01%. USAA interest rates trash, but if you make a certain number of transactions each month you can earn 4%. APY annually on that. Yeah. So, but I don't, I don't make transactions on my emergency fund.

But anyway, that's an example of just a completely different bank, like you said.

[00:07:09] Spencer: Yeah. The other thing that I do is, Justin, it wasn't clear from your question if you were married or not, but for myself, my wife and I also have separate checking accounts, and that's where our, we call our “marriage premium”, but basically, the money that we completely set aside from the budget that we both get an equal amount and we can spend that in any way we want.

My wife's is called the “Dragon Hoard” because she just sits on it like a dragon with gold and it just keeps building up and building up and building up, and she has tons of money in there, whereas mine has like 17 cents of it. Thanks, Amazon. Yeah. I spend it all the time. 

One thing to know is that USAA, Ally, Navy Federal NFCU, it's very easy to open up new accounts quickly, and then you can also close them just as quickly.

Sometimes you have to call in to close the account and they'll just send them, if there's like a penny left in there, they'll send the money to another account that you have. But that's a way to keep your accounts organized. 

If you had an open account for a specific purpose like you were saving for a down payment for a car or for a house, vacation house or vacation, and you had a very specific goal, but now you don't have a savings goal that requires an account and just close it if you want to tidy up your accounts.

Finally, if you have like lumpy expenses or long-term savings, you might want to think about something like a term that we've used before as “sinking fund” where you have, for example, auto insurance due every six months, and so you'll set aside a $100 a month so that when the $600 auto insurance bill is due in June, you've already been saving for it since January.

And other lumpy expenses like you might not take a $5,000 vacation every month, but you might do one every year or two.  So you want to be setting aside money and you might open up a separate account and then automatically transfer money into there.

[00:09:02] Jamie: Whatever system you choose though, it's important to make it easy and manageable for you and the workload between your kids, family, whatever you might have in your situation, Justin, and your personal life because you don't want to make such a complex spreadsheet nightmare that only you know what to do. Your spouse is confused about where your money is or wouldn't know what to do, God forbid if something should happen to you.

So keep it manageable and not too time-consuming. So whatever system that is for you, maybe experiment a little bit and it's going to be different from probably anyone else you talk to. But hopefully, those are some ideas.

[00:09:33] Spencer: Yeah, and personally I bounce between maybe like six and a dozen accounts over the years.

I think I'm down to like six now and then I have some separate accounts for my business as well. 

So, Justin, I hope that we answered your question there about how to organize your savings accounts and where to keep your emergency fund.

Listener, if you've got questions, you can reach out at info@militarymoneymail.com or we're on Instagram @MilitaryMoneyManual.

Also, check us out at MilitaryMoneyManual.com. Got a lot of good content there. There's also a contact page there if you want to reach out. But we love getting listener questions and we love helping our military community. We'll see you in the next episode of the Military Money Manual podcast.