A Financial Back-Up Plan

Most days, I am pretty financially aware:  I know how much money is in my bank accounts, I know if there is anything on our credit cards, and I know what bills are coming in soon.  I keep it all on paper (or software) but it also sits in the back of my brain.  Keeping on top of my finances is a key to making sure that everything gets paid on time, I don’t spend more than I have, and that I don’t overdraw my bank accounts.

During every life, however, there are going to be short periods of time when your brain is occupied with other stuff and you can’t keep up with all the details of your financial life.  A family emergency, a new baby, or an unexpected deployment can temporarily distract you from fiscal matters.  Military life seems to bring a larger than normal share of surprises.  Good preparation can keep an emergency evacuation or urgent hospital stay from creating chaos.

There are a few ways to set up your finances so that short-term inattention doesn’t result in long-term disaster.  Take a little bit of time to pick the tools that will work best for you and then put them into place.  When life gets complicated, you won’t have to worry about your money.

    1. Have an emergency fund. How big? That depends. Are you single, living in the barracks, and just started your enlistment, or married with a mortgage and four kids? Are you locked into the military for a chunk more time, or are you nearing the end of your enlistment? To figure out the size of your idea emergency fund, try to envision your worst possible financial month. Plane tickets to go home? Huge car repair? Leak in your upstairs bathroom (and subsequent flood of the rest of the house?) Someone in the hospital and you have to eat in the cafeteria for two weeks? Try to estimate cost of this worst possible month. Obviously you can’t save up that much money all at once, but look at that as your goal. Any emergency fund is better than none!
    2. Set up overdraft protection on your checking account  Check with your bank or credit union to make sure that you are only paying for the overdraft protection when you need it, and that there isn’t a huge fee when it is used.  This is only to be used by accident or for true emergencies.  If you are using it more than twice a year, you need to look at your situation and find out what is wrong.  One thing I’ve learned – get more overdraft protection than you think you’ll need.  Inevitably, the one time you miscalculate will be the one time that you have an unusually large check go through.
    3. Set up a default automatic bill payment.  For example, I have our mortgage on EasyPay.  I always pay manually before the due date, but if I were to forget, the money would automatically be transferred on the due date.  For my credit cards, I have them schedule to pay the minimum payment due on the due date.  Since I rarely have a balance and/or I’ve already paid, no payment comes out.  Just make sure with your bank that it will work the way you think it will.  Every financial institution has unique procedures and it is important that you understand how it will work.  Having just this minimum payment made automatically will prevent you from having your interest rate increased due to the default rules.
    4. Simplify your finances.  Don’t create complicated money-saving schemes that require more work on your part.  Try to work out of just one or two checking accounts, and don’t have balances on multiple credit cards.
    5. Pay non-automated bills when they come in.  This is a huge problem for me…we get a water bill every other month, and rarely at the same time.  If I don’t pay it as soon as it comes in, it is forgotten and the late payment fee is quite big.  Plus, if we were to be on vacation or otherwise distracted when the second notice came, they would turn off our water.  That would be a huge bummer.
    6. Use all this snazzy new technology to help you keep on track.  You can set your computer, your PDA, even your phone to remind you to pay certain bills on certain days.  If you are unable to pay that instant, use the “snooze” features to remind you again until it is done.  Just make sure the alarm is on a piece of gear that you will have in the event of an emergency, and that you will have a way to pay the bill if you are not at home.
    7. Have a credit card with a goodly amount of credit available on it.  In the event of an unforseen circumstance, this might be the easiest way to manage your finances until the situation has ended.

    Obviously, this isn’t a one-size-fits-all sort of plan, but more of a do-what-is-going-to-work-best-for-you situation.  Some advance planning will alleviate a lot of stress in an urgent situation.  The last time I needed to go to a funeral, it was a blessing to be able to tell my husband, “Don’t worry about the money.  Just do what you need to do, and I’ll sort it all out when I get back.”
    Many thanks to the contributors at the WiseBread forums board for their suggestions for this article, including Philip Brewer, Starshard0, KevinW, StephenDress, Megan, and financialnut.

  • About the Author

    Kate Horrell
    Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.
    • These are some very useful tips! #3 in particular is something I just set up recently to prevent from forgetting about payments. I try to automate as much as possible.
      When my wife and I left for two weeks last year on our honeymoon, it made me realize how much financial leg work went into preparing for being gone just 14 days. Since then, I’ve tried to make things a little smoother.

    • threadbndr

      And have your powers of attorney well thought out. I know that your command will probably require you to have this paperwork in place for a deployment, but take some time BEFORE hand to think about who should hold your power of attorney and for what. I had an unlimited PoA for my son when he was in Iraq the last time, and it worked out well – but that takes a huge amount of trust on both sides.

    • I agree with you that you have to be prepared for the unknown. Always remember that rainy day could be just around the corner