Prepare your finances for the transition to civilian life.

There's a lot of upsides to transitioning to civilian life. No more early morning runs, PT tests or deployments, to name a few. But as with most of life's exciting transitions, there are also challenges, such as finding a new civilian job, settling into a new community, and navigating the civilian world of insurance and health care.

It's important to prioritize your finances in the wake of all the excitement around returning to civilian life. To strengthen your financial foundation, first focus on building your transition fund.

What is a transition fund?

A transition fund is money you set aside to help you move from the military to civilian life. Aim to stock your transition fund with six to 12 months' worth of living expenses — a big number that will come in handy if you have an employment gap or paycheck delay.

It's important to note that this transition fund doesn't take the place of your emergency fund. You need an emergency fund with three to six months' worth of living expenses, plus a transition fund with six to 12 months' worth of living expenses.

For most of us, leaving the military is not an emergency but a known life event. If you know it's coming, plan for it. I used the word “us” because I also transitioned from the military to civilian life. I actually did it twice. Once when I left active duty and joined the USAF Reserves and a second time when I finally retired from the USAF Reserves.

What your transition fund covers

You can use your transition fund to pay for items like rent or mortgage, job search expenses, groceries and medical expenses.

If your family is like mine and it probably is, they need food for meals and groceries even if you don't have a job.

But it also helps with expenses you might not think about. When I was transitioning from the Air Force, my transition fund covered things like civilian clothes for my job at USAA.

As a pilot, I always wore a green flight suit. I didn't have civilian work clothes — much less a whole wardrobe — and that's an expense I was not expecting.

Searching for a new job is already one of life's most stressful events. There's a lot of pressure to secure employment, and if you're strapped for cash, that pressure can turn to anxiety. If you have a transition fund, you have some flexibility to wait for a job that's a good fit, not just the first job that comes along and pays the bills. I can't tell you how many stories I've heard from veterans who took a job they didn't want simply because they needed to pay bills.

Since searching for a job can be stressful, USAA seeks to help eliminate some of that stress. How? USAA has teamed up with RecruitMilitary whose aim is to help military members and their families find jobs with top veteran-friendly employers.

How to save for your transition fund

So how do you save such a large sum of money?

This is a very common question. Most importantly: Get a head start. USAA recommends starting to save for the transition fund at least two years before your expected transition date.

Follow these steps to prioritize your transition fund:

1. Review your current budget to find savings opportunities, which might include reducing expenses like eating out, vacations or entertainment.
2. Once you find those savings opportunities, automatically deposit the extra money into your transition fund savings account each paycheck.
3. Contribute any unexpected windfalls, such as a tax refund, to make large gains.

It's the principle of ‘paying yourself first'. If you wait until the end of the month to save out of what is left over, you will reach the end of the month and find there's nothing left with which to save. Most of us are that way.

What to do with any leftover funds

If you don't deplete your transition fund as you return to civilian life, consider yourself lucky. If your job search takes longer than you expect, the transition fund will be a life saver when it comes to paying bills and providing for you and your family.

I've never heard anyone complain about saving too much. But if you have money left over in your transition fund, you can apply that to other goals, such as your emergency fund, retirement, buying a home or paying down debt.

Military retiree considerations

If you're retiring from active duty, your military pension will provide consistent income that can help offset how much you have to withdraw from your transition fund.

Military retirees also can benefit from TRICARE Opens in new Window .‍ ‍ ^{See note 1} It can help offset medical costs, which can quickly erode your emergency or transition fund.

If you're in the Guard or Reserves, you may not get your military pension and medical benefits immediately, but at the same time, the transition to civilian life is less dramatic.

As Guard and Reserve service members leave military service, they'll have some decisions to make around the Reserve Component Survivor Benefit Plan. To learn more, read this article.

Congratulations on your upcoming transition to civilian life. There are so many opportunities, and the experience will be full and rich if you're financially prepared.

However, the transition fund and job search are just two aspects of what can be a complicated endeavor. That's why USAA has created an entire experience devoted to helping you transition from military to civilian life. We offer a military separation assessment which helps you analyze the financial impacts of living in different geographic locations. We also have a separation checklist that guides you through the actions necessary to transition out of the military with financial peace and security.