You still need one

Brad is debt-free, and he serves in the Navy. He doesn't have an emergency fund, but says the Navy provides certain types of relief funds for its members. Still, Dave urges Brad to set aside three to six months of expenses for the unexpected.

QUESTION: Brad is debt-free except for his home. He will be back on active duty in the Navy soon. The Navy provides certain types of relief funds for its members depending on where they’re based and other factors, so Brad asks how he should approach Baby Step 3.

ANSWER: For Baby Step 3, we tell folks to have three to six months of expenses set aside. You have incredibly stable employment, so you would probably be okay on the three-month side of that equation. In other words, you wouldn’t need quite as much emergency fund money as if you were a straight commission salesman.

You’ll still have emergencies the Navy doesn’t cover, though. What if the transmission goes out in the car? The Navy probably doesn’t have a fund for that, so you still need an emergency fund. You just might need a smaller one in that three-to-six-month range.