Saving Money for Your Military-to-Civilian Transition

There’s a lot you need to do to prepare for your transition into the civilian world, and it can be easy to get caught up in it all. However, one of the most important things you can and should do is to start saving for your transition so you have something to fall back on while you’re looking for employment in the civilian world. Below, we’ll talk about the methods for saving before you officially transition out of the military so you and your family can be better prepared for your future.

What Is a Transition Fund?

A transition fund refers to a savings fund that’s specifically set aside to assist you with your transition from the military to the civilian world. Ideally, you’ll want to have a transition fund that can cover somewhere between six to twelve months of living expenses, which can help cover the gap in your employment.

Remember that your transition fund won’t replace your emergency fund. You will still want to have an emergency fund with three to six months' worth of savings to cover you if something happens, such as a medical emergency or vehicle breakdown. You don’t want to use your transition fund as your emergency fund since it’s meant to cover you while you’re figuring out employment after the military. Your transition will be something you can plan for rather than an unexpected emergency.

What You Can Use Your Transition Fund For

Unless you’re lucky, you won’t have a job immediately after your transition from the military. It may take a couple of weeks or even longer to secure stable employment and a steady paycheck. Your transition fund should be able to cover your typical expenses for you and your family, which include mortgage payments or rent, utilities, childcare, insurance, and groceries. Having a way to cover these costs while you’re looking for a new job can prevent you from taking on unnecessary debt or being late on your payments.

A transition fund may also be able to cover costs you haven’t thought about, such as new clothing or uniforms for a new job. You’ll also have a little more time to find a job you actually want when you have savings to fall back on, rather than having to settle for a job you don’t like or doesn’t pay well all for the sake of covering your expenses.

How to Start Saving for Your Transition Fund

Ideally, you should start saving as early as possible after your transition date so you don’t have to scramble to save enough while still paying for your expenses. You want to try to start saving around two years from your expected out date, with the goal of trying to save for between six to twelve months of expenses so you have time to find a job that fits you. Take a look at the following tips to help you save for your future transition:

1. Look at Your Current Budget

There may be opportunities in your current budget for extra savings, even if you’re already putting money to the side each paycheck. You may notice you’re spending more eating out than necessary or have subscriptions you don’t even use anymore. You may also find that you can change providers to reduce costs, especially when it comes to things like your phone or internet provider.

Once you adjust your budget, you can start putting the extra money you’re saving into your transition fund. You might find that you’re saving more money than you realize by cutting back on a few small but regular purchases.

2. Pay Yourself First

There’s a concept referred to as “paying yourself first,” which refers to automatically paying into your savings account according to your budget. Many people will pay their expenses and bills first and try to save what they have left over, only to realize they don’t have anything left over to save. Consider setting up automatic transfers to take care of your savings as soon as you get paid, that way you don’t have to worry about making the transfers yourself each paycheck.

3. Put Large Payments to Your Transfer Fund

There are some moments in life where you may receive a large lump sum, such as during tax season or when you or your spouse receives a bonus at work. These payments usually exist outside of your regular pay and aren’t necessary to pay for your life expenses if you’re following a strict budget. Anytime this happens, try to put these large payouts toward your transfer fund. Doing this will help take some of the stress out of saving and will make it easier to reach your savings goal sooner.

4. Find Ways to Cut Back

There might be some things in your lifestyle that you can cut back on, such as frequent nights out to restaurants, impulse purchases online, regular vacations, and more. You also want to get out of the idea of “lifestyle creep”, or thinking that you need to live better immediately. While it might not be what you want to do, it might be better to rent first before buying a home if it will help you save each month.

You might also consider taking inventory of your possessions and see if you have anything lying around that you don’t use. For example, maybe you bought a treadmill during a health kick but it’s been collecting dust in your garage. Something like this would be worth selling, and the money you get from the sale can go right into your transition fund.

5. Consider a Side Hustle

If you have some extra time, you might want to consider participating in a side hustle to gain some extra income outside of your regular pay. You can sign up to drive for ridesharing apps or food deliveries, which can create a method for increasing your monthly savings. You can even rent out a room in your house if you have the extra space. There are plenty of side hustles and gigs you can choose from, so find something that works with your schedule and skill set.

6. Start Tackling Your Debt

While you have the time and guaranteed income through the military, try to tackle as much of your debt as you can while you’re saving for your transition. The sooner you can knock out your debt, the more you’ll have available each month to save. Start by paying off your debts with the largest balance and interest rates first, which will generate the most savings in the long run.

If you’re having trouble with your debts, you can talk to a financial advisor on base who can take a look at your budget and expenses and create a payment plan with you. A professional can guide you in the best direction based on their expertise and experience, giving you a clear vision of your financial future and future savings.

7. Invest Your Money

If you have the extra income available, you can invest some of the money you have when you “pay yourself first” to help grow your wealth and invest in your future. There are plenty of ways to invest, such as retirement accounts like your TSP, stocks, mutual funds, and exchange-traded funds. If you’re new to investing and not sure where to start, you can always talk to a financial advisor for help.

What to Do If You Have Money Leftover

You may not use all of your transition fund, meaning you’ll have some excess left over. Rather than going on a shopping spree with the leftover cash, consider using it for your other financial goals. Whether you’re trying to add extra money to your emergency savings, saving for a home, trying to pay off your debt, or planning for retirement, the extra money from your transition fund can help you get one step closer to reaching your financial goals.

Things to Consider if You’re Retiring From the Military

If you’re retiring rather than separating from the military, you will receive a military pension or retirement pay. This income can help offset how much you’ll actually have to take from your transition fund, but you should still try to save up for between six to twelve months of expenses without considering your military pension just in case there are any unexpected delays.

As a retiree, you will also get to keep TRICARE, which can go a long way in helping you maintain your transition fund. Rather than having to deplete your transition or emergency savings to cover medical costs or medical emergencies, you’ll be able to use your insurance which will help you extend the life of your fund.

Keep in mind that if you’re transitioning to the Reserves or National Guard before you retire, you won’t immediately receive your pension or your TRICARE benefits. You will want to account for the delay with your transition fund so you’re not scrambling to find a job just for a paycheck.

Stay on Top of Your Savings at MLC

Gear is a non-negotiable part of your military service, and there are going to be times when you need to replace worn-out gear or buy something brand new. Military Luggage Company can help you save when it comes to purchasing the gear you need for your operations. We offer warrior discounts on all of our products for active duty service members, veterans, and their families to help with their savings. Feel more prepared for your next mission, even when you’re on a budget. Get started by checking out our selection, or contact us if you have any questions.