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As a new service member, you probably have financial pressures you’ve never faced before, such as paying rent or buying a car. And you’re beginning to make financial choices that can negatively or positively impact your future, such as paying off credit card debt. When you add a deployment or two, you can easily see that it’s important to have sound financial skills to make sure you’re doing the right things with your money.
The first step in taking charge of your financial life is making a budget, also known as a spending plan. A spending plan is crucial for managing your money because it can help you understand how much money you have coming in, how much is going out, and where you’re spending it. Budgeting also allows you to identify how much money you can comfortably save or use to pay off debt each month.
There will probably be some expenses that you’ll have to estimate as you complete a budget, such as clothing, gifts and vacations. As long as you make honest estimates, you will have enough information to get a good picture of your overall financial situation.
Saving money every day
There are hundreds of ways to save money every day, and they can really add up. For example, if you buy coffee at a coffee shop three times a week, you could be spending more than $400 a year on coffee alone. Below you’ll find some suggestions for saving money each and every day.
- Take advantage of military discounts. As a service member, you’re eligible for discounts on insurance, travel, dining out, sporting events and recreation, to name just a few. Always compare the military discount to other promotions that may be offered and choose the discount that offers the most savings.
- Eat out less frequently. Invite friends over for a potluck dinner instead of a more expensive meal out. Cook for yourself instead of eating takeout.
- Use the library for free books, music, magazines and videos. You can also find many of these same items free at centers for single service members on your installation. Share magazine and newspaper subscriptions with a friend or read the free, online versions.
- Use the on-base gym at no charge instead of joining a health club.
- Shop for the best deals on cell service, car insurance and other services. Be careful of long-term contracts that may leave you stuck if you move or deploy.
- Check the local or installation newspaper for free activities. Your installation Morale, Welfare, and Recreation clubs may offer specials as well.
- Make sure you’re getting free checking. If you are paying bank fees, find a bank with a better offer. If you’re on an installation, consult the installation bank and credit union.
- Use your bank card only at no-fee ATM machines. Or open an account with a bank that pays other banks’ fees for using their ATMs. Many stores also give you the option of getting $20, $40, or another amount in cash back when you pay for your purchase with a debit card (when you swipe your card, you add the amount you want back to the total due), which will help you avoid ATM fees.
- Avoid impulse buys. Force yourself to wait a week and see if you can live without the item you want or if you can find it cheaper somewhere else.
- Trim household expenses by turning off lights and lowering the heat or air conditioning when you’re not home. Check your windows and doors for drafts and put some insulation around areas where you feel cold or warm air.
- Limit your spending on miscellaneous items like drugstore purchases, music, junk food or anything else you don’t need.
- Don’t pay full price. Shop at outlets or during sales and take advantage of online discounts. However, don’t fall into the trap of overspending simply because what you’re buying is on sale. Make a list of what you need before you go, and stick to the list.
- Raise the deductible on your car insurance, which will lower your monthly payment. Just make sure you have enough money saved up to cover the higher deductible.
- Get rid of any credit cards with annual fees. Avoid interest charges by paying off balances each month. And never get caught by late fees. Ask your credit card company about its annual percentage rate, late-fee policy, overdraft protection plans, and other terms and conditions.
Your credit record
Maxed-out credit cards add up to serious debt for many young adults starting out on their own. Excessive debt can have long-term negative consequences, including difficulty buying a home or car or even landing a job.
The costs of credit card debt can be high. If you’re carrying credit card debt that you aren’t paying off, this will be reflected in your personal credit record. Your credit record shows every single loan or credit account you’ve had for the past seven years and every time you’ve been late or missed a payment. Whenever you apply for a loan or a charge card, and many times when you apply for an apartment or even a job, someone will check your credit record to see if you have a history of paying your bills.
There are three credit bureaus that maintain credit records: Equifax, Experian and TransUnion. It’s a good idea to get a report from each of the three bureaus once a year whether you have credit problems or not. The centralized website, AnnualCreditReport.com, is sponsored by the three main credit bureaus and allows you to order a report. Beware of credit monitoring services that charge you a fee to monitor your credit report. Due to security reasons, this website may not work from overseas. If you are overseas, you can order a hard copy of your credit report from the website.
Paying off debt
If you find negative information on your credit record that’s accurate, such as missed or late payments or a poor score resulting from too much debt, it’s time to start dealing with your debt. There are four steps for managing debt:
- Acknowledge that you have debt issues and commit to fixing them.
- Stop spending. Take your credit cards, store cards, and gas cards out of your wallet and put them in a secure location at home or cut them up.
- Make a spending plan.
- Pay down your debts month by month and pay them off one by one. Make a list of the debt payments you owe each month, including the annual interest rate on each card. Then prioritize according to interest rate. Over time, you’ll get your debts paid off.
Although saving for the future may not be your top priority, you really should always have three to six months of expenses saved “just in case.” Here are ways to start saving:
- A savings account is probably the easiest way to save because there is no minimum deposit required to get started. You can access your money whenever you want, usually with an ATM card, but interest rates are fairly low. If you’ll be deployed and receiving combat pay, sign up for the Savings Deposit Program, a savings account that earns a very high 10% interest. Active-duty and activated Guard and reserve members are eligible for this savings program during deployments.
- Money market accounts are similar to savings accounts, but the interest rates are usually higher and there is generally a minimum deposit or balance requirement.
- Certificates of deposit allow you to save a sum of money for a set period of time (usually six months or longer) and earn a fixed amount of interest. The interest rates on CDs are higher than savings accounts, but you pay a stiff penalty for withdrawing money before your time period is over.
- Retirement savings. The Thrift Savings Plan provides retirement income to service members and other federal employees. Your contributions are tax-deferred, which means that you won’t pay federal taxes on the contributions until you withdraw them.
- Roth TSP Investments. Traditionally, participants invest pre-tax dollars into their TSP accounts. With the Roth TSP, participants have the option to make Roth contributions, which allow participants to invest after-tax dollars into their TSP accounts too. When you withdraw funds from your traditional TSP, you will have to pay taxes on the money, as well as the earnings it has accrued. With Roth contributions, you have already paid taxes on the money, so you can withdraw it tax-free, along with any earnings it has accrued, as long as meet you meet certain requirements. Check out our article on Roth TSP Investments for more information.
Programs to help service members stay financially fit
Knowing all the ins and outs of today’s complex financial environment is no easy task. For service members, the military lifestyle can make that job even tougher. Service members and their families may be at higher risk for potential financial crises, credit issues, or the pitfalls of predatory lenders. What’s more, financial readiness can directly affect mission readiness, as service members with financial problems may not be able to concentrate on the mission at hand. To help service members and their families to plan and control their financial future, the Department of Defense) provides financial information, training and counseling through the Personal Financial Management program and other programs and services.
Financial Readiness Campaign
Service members and their families prosper when they can manage their own finances and save money for the future. Working with partners throughout the government and private sector, the DoD’s Financial Readiness Campaign is designed to improve personal readiness by reducing stress related to financial problems. The program promotes awareness of personal finances, helps service members and their families increase their savings and reduce debt, and educates them about predatory lending practices. Financial readiness also allows service members and their families to:
- build a good credit history for financial flexibility
- avoid the personal and professional stressors of poor money management
- have emergency savings for unforeseen contingencies
- establish a path to a secure retirement
- protect themselves against predatory and unscrupulous lenders.
A major part of the Financial Readiness Campaign is Military Saves. A network of federal agencies and nonprofit organizations encourages service members and their families to build savings and provide for their financial needs. This free program can:
- help service members reach their financial goals. Written goals shared with others are more likely to be achieved.
- help service members get out of debt faster or save more money. People with written plans save twice as much money as people who don’t have written plans.
- help service members get informed. MilitarySaves benefits include a free quarterly electronic newsletter, access to other wealth-building information, and savings and debt reduction tips.
- help service members make a difference. Establish a financially fit fighting force by building personal wealth through saving.
Other resources to support financial readiness
Service members and their families can find trained financial counselors as part of the Military and Family Life Counselor program. Check with your installation’s Family Support Center or, if you don’t live near installation services, check with your state’s Guard or reserve center.
Trained financial counselors through Military OneSource can help service members and their families by telephone, online or email. Counselors can provide information and assistance on financial benefits for military members, planning and managing a budget, planning for major purchases such as a car or home, consumer issues, credit and collections, and saving and investing.
Each branch of service has an associated private, nonprofit organization that assists service members and their families in need. These relief societies can help with things like emergency transportation, funeral expenses, medical bills, food, rent, utilities, disaster relief, child care expenses, vehicle repair or other unforeseen family emergencies. For more information, please contact Army Emergency Relief, the Navy-Marine Corps Relief Society , or the Air Force Aid Society.
Personal financial management programs
Each service has a Personal Financial Management program to help service members with financial issues by providing classes and seminars, one-on-one counseling, and information on such issues such as consumer rights, credit and savings. Counselors can help with:
- personal finance basics. Counselors can suggest ways to pay down debt and teach you about savings programs, investments, and making a family budget.
- credit issues. Service members are expected to meet their financial obligations as agreed and on time. Failure to do so may result in disciplinary action under the Uniform Code of Military Justice. PFM counselors can help you write letters and contact creditors to help repair your credit and clean up your credit report.
- military savings programs. PFM counselors can give you information about the Savings Deposit Program for eligible deployed personnel and investment programs like the Thrift Savings Plan.
- understanding consumer protection laws. Counselors can help you understand consumer rights and how to get the best interest rates on loans (although they can’t offer legal advice).
The DoD Savings Deposit Program gives service members serving in designated combat zones an excellent way to grow their savings at the very high rate of 10% interest. The program is only available during deployment. For more information, visit the DoD Savings Deposit Program website.
The Servicemembers Civil Relief Act provides financial and legal protections to service members, including caps on interest rates, stays of certain legal proceedings, protection from eviction, and termination of leases without repercussions. Many of the SCRA’s protections also extend to family members, but this varies from section to section. Because details of the SCRA are complicated, service members and their families are encouraged to contact their nearest Legal Assistance Office if they need help meeting their financial obligations.
The Thrift Savings Plan is a government-sponsored program that helps service members and federal employees save for retirement through payroll deductions. Although contributions are voluntary, many service members take advantage of the plan because their contributions are tax deferred. Contributors can choose between two tax treatments for their TSP contributions:
- Traditional (pre-tax)- Defer paying taxes on contributions and earnings until withdrawal. If you are a uniformed services member making tax-exempt contributions, your contributions will be tax-free at withdrawal but your earnings will be subject to tax.
- Roth (after-tax)-Pay taxes on contributions as they are made (unless making tax-exempt contributions), and earnings are tax-free at withdrawal as long as IRS eligibility requirements are met.