Financial Literacy

There's no doubt that serving your country is a noble undertaking. The financial implications of a military career, however, are less clearly defined.

Personal finance is a broad topic with themes that affect virtually everyone, regardless of their profession. However, the unique circumstances, experiences, and opportunities in military service add another layer of complexity. This week, we'll focus on personal finance themes specifically tailored to those in the military, from those just starting their service to veterans navigating their retirement.

Military life is characterized by its distinct financial ecosystem. Steady incomes and unparalleled benefits, such as education assistance, housing, healthcare, and retirement planning, underscore the rewards of military service. Yet, the path has potential challenges - debt levels among servicemembers tend to be higher than the general public, military spouses are unemployed in higher numbers, and unscrupulous businesses have been known to target those in uniform. 

The truth is that military service can lead to a happy and financially secure life, but it takes both awareness and effort to make it work.

This week, we'll discuss topics you need to know to be financially healthy while serving in the military. Some of the issues we'll address include:

• The financial challenges of deployment and how to manage them effectively.
• Strategies for budgeting and saving on a military salary.
• How to stay financially fit throughout your military career.
• Knowing when to retire from the military and planning for a successful transition.
• Avoiding scams and financial pitfalls that target servicemembers.
• Maximizing your savings opportunities while serving.

Ultimately, financial success is within reach of virtually every military servicemember. To achieve it requires a combination of financial literacy, a knowledge of the military salary and benefits structure, and adherence to sound budgeting and savings principles.

Throughout this series, we'll dive deeper into each of these strategies and explore the unique financial challenges and opportunities that come with military service. Whether you're a new recruit or a seasoned veteran, by equipping yourself with the right knowledge and tools, you can navigate the complexities of personal finance in the military and build a strong foundation for long-term financial success.

Deployment is a reality of military service that comes with unique financial challenges. The process can bring unforeseen expenses, and deploying to a new, unfamiliar environment can create both anxiety and uncertainty. Spouses, on the other hand, may suddenly find themselves forced to do the work of two people while dealing with their own separation worries.

Given the emotional stress of deployment, its financial implications can almost be an afterthought. However, it is essential to have a keen grasp of the many ways that deployment can impact your finances. Let's take a closer look at the financial challenges (and opportunities) created by deployment.

Emotional Stress and Financial Management

The stress caused by the deployment of a spouse can manifest in many ways - and falling behind financially is one of the most common. When you're suddenly forced to assume all household and even parenting responsibilities, budgeting and bill paying don't always rank first on your list of priorities.

Understanding the emotions you're dealing with is the best way to ensure you don't allow your finances to spiral out of control during a spousal deployment. To help manage this stress:

• Establish a support system of family, friends, and other military spouses who can provide emotional support and practical assistance.

• Use tools like video calls or secure messaging apps to maintain open communication about financial matters with your deployed spouse.

• Take advantage of military resources, such as the Family Readiness Group or the Military and Family Life Counseling Program, which offer support and guidance for families during deployment.

Financial Programs for Deployed Personnel

Deployment typically involves increased pay due to allowances like Imminent Danger Pay or Family Separation Allowance, which can vary based on location and deployment duration. This increase in income may seem like a financial boon. Still, it's essential to consider the additional expenses that can arise during deployment.

For example, maintaining a home in your absence can be costly, especially if you're a homeowner. You may need to consider property management services or arrange regular maintenance to prevent issues from developing while you're away. These costs need to be factored into your pre-deployment budgeting.

Similarly, family expenses can rise during a deployment. Childcare costs may increase if one parent is deployed, or there might be additional travel expenses if the family chooses to stay with relatives. These incremental costs should also be taken into account.

Having a robust emergency savings fund becomes even more critical during deployment. Unforeseen expenses can arise, and having a financial buffer can help to deal with these unexpected costs. If you haven't already, consider building an emergency fund covering three to six months of living expenses.

Deployed members of the armed forces have access to various exceptional benefit programs. These include the Department of Defense Savings Deposit Program, which offers a 10-percent return on deposits of up to $10,000. However, this program is available only to deployed personnel in designated combat zones. In addition, some deployed personnel are entitled to a daily spending allowance (also known as per diems).

Legal Protections and Tax Implications

One critical piece of legislation that all servicemembers should be aware of is the Servicemembers Civil Relief Act (SCRA). This law provides several financial protections to servicemembers, such as capping interest rates on pre-service debt at 6%, protecting against eviction while deployed, and allowing for the termination of housing leases in the case of deployment.

Deployed servicemembers may also qualify for tax benefits, such as the combat zone tax exclusion, which can help reduce tax liability. Consult with a tax professional or visit your installation's legal assistance office for guidance on these benefits.

Understanding these rights can help servicemembers avoid potential financial burdens during deployment.

The Takeaway

Deployment can be a financially challenging time for military families. Still, with careful planning, budgeting, and a thorough understanding of available resources and benefits, it's possible to maintain financial stability and take advantage of unique opportunities to save and grow your wealth. Remember, you don't have to navigate these challenges alone – take advantage of the many support services and resources available to military families during deployment.

Responsibly managing money is important for everyone, but the stakes can be even higher in the military. The often transient nature of military life definitely brings unique challenges. 

First, military pay isn't quite as low as it's often made out to be. For those with limited work experience and no college degree, the military typically offers relatively lucrative compensation compared to the private sector. For skilled workers, the military's salary progression can lag behind similar careers in the private sector, but the advantages of a military pension can be substantial as well. Either way, budgeting and saving are essential skill sets for military personnel. 

To illustrate the importance of this issue, let's examine the challenges associated with managing day-to-day finances in the military.

Managing Money While Serving

According to a National Foundation for Credit Counseling survey, 77 percent of servicemembers admitted having financial concerns. Additionally, the percentage of servicemembers with month-to-month credit card debt is 25 percent higher than that of the general public.

Since military salaries are modest, and many servicemembers come from families without extensive financial resources, the risks of high-interest credit debt and predatory lending are elevated. To combat this threat, the military has made an effort to stress financial literacy principles and careful budgeting practices.

The Military Saves initiative, for example, is a comprehensive resource for service personnel designed to encourage smart spending and saving. It offers a trove of information geared at helping military members manage their month-to-month finances.

The first step to effective budgeting is to have a clear understanding of your income. In the military, this can be more complex due to the various types of pay and allowances, such as Basic Allowance for Housing (BAH), Basic Allowance for Subsistence (BAS), and other special duty pay. Be sure to account for all these sources of income when setting up your budget.

Once you clearly understand your income, the next step is to break down your expenses. Essential expenses such as housing, food, utilities, and transportation should be your first consideration. Then, move on to discretionary spending, such as entertainment or eating out. Lastly, make sure to factor in savings and debt repayment.

A good budgeting rule to follow is the 50/30/20 rule. According to this guideline, 50% of your income should go towards essential expenses, 30% towards discretionary spending, and 20% towards savings or debt repayment.

The Importance of Saving

While budgeting helps you manage your current financial situation, saving allows you to plan for your future. The military provides several opportunities for saving and investment. The Thrift Savings Plan (TSP) is one such option. It's a low-cost retirement savings plan, similar to a 401(k), specifically for military servicemembers. Regular contributions to your TSP can be a significant step towards securing your financial future.

Additionally, the military offers the Savings Deposit Program (SDP) during deployment for those receiving Hostile Fire Pay. This program provides a guaranteed 10% annual return on investments up to $10,000, making it an excellent choice for servicemembers to grow their savings while deployed.

Life can throw unexpected curveballs at anyone, but these unexpected events can be even more prevalent in the military. An emergency fund can help you manage these unforeseen expenses without going into debt. Aim to have at least three to six months' living expenses in a readily accessible savings account. Remember, this fund isn't for regular expenses or discretionary spending – it's for emergencies only.

Improving Your Financial Situation on a Military Salary

While financial education is undoubtedly important, the military provides various material benefits that can be leveraged to make budgeting less painful. These include:

• Tax-free housing benefits.
• Lower, capped loan rates that the general public can't access.
• Tax-free products and services on base.
• Perks such as free tickets, military discounts, and preferred job placement.
• Educational assistance.
• Inexpensive life insurance.
• Health care.

Understanding how to maximize the value from this wide array of benefits can help relieve the pressure on your month-to-month finances. Additionally, it's essential to understand the fundamentals of your benefits. This includes how your housing benefits are impacted by where you live, your number of dependents, your rank, food and clothing allowances, re-enlistment and other bonuses, and incentive pay.

Servicemembers who grasp the sometimes complex military benefits and pay scale have an advantage when it comes to successful budgeting and saving. Extracting a bit more monetary value from these benefits can relieve financial pressure, especially when one has a limited military income.

The Takeaway

No one will ever become wealthy on a soldier or sailor's salary. However, the overall compensation package offered by the military is enough for a comfortable life if you adhere to smart budgeting and saving principles.

And remember - if you find yourself in financial trouble, the military offers free financial counseling services through organizations like Military OneSource. These professionals understand the unique financial circumstances of military life and can provide personalized advice on budgeting and saving. Take advantage of these resources to help manage your financial situation.

The military can teach you many things, but it doesn't always teach you how to stay financially healthy while serving your country. Staying financially fit is a marathon, not a sprint. It requires ongoing vigilance and conscious decision-making, especially in the context of military service.

The numbers show the extent of the issue - a recent study found that three-quarters of middle-class military families report that at least one member has experienced a health issue related to financial difficulties. The very nature of military life can sometimes make servicemembers targets for unscrupulous financial practices. To help you avoid a similar scenario, let's take a closer look at common money mistakes to avoid and some smart strategies to pursue instead.

Common Financial Traps 

For many younger people, a new military career might significantly increase income and financial stability. While the armed forces don't pay extravagantly, the guaranteed salary and comprehensive benefits are often more generous than what can be earned elsewhere.

This improved financial situation - and the promise of a regular paycheck - can sometimes lead military members to assume a greater debt load than experts recommend. Overextending yourself financially is one of the most common errors servicemembers make.

Another pitfall that servicemembers can encounter is predatory lending. These are unfair, deceptive, or fraudulent practices in lending, often involving high fees and interest rates. Payday loans, car title loans, and certain types of credit cards can fall into this category. Predatory lenders often prey on servicemembers, lured by their steady government paycheck. To avoid this trap, always read the fine print and understand the terms of any loan before accepting. Consider other options like low-interest personal loans from a reputable bank or credit union or an advance from your pay via the military's emergency relief funds.

It's also important to realize that military careers are mobile. Purchasing a home - then being forced to sell it before it's had sufficient time to appreciate (at least enough to cover closing costs and other expenses) - is another common mistake servicemembers may make.

What To Do Instead

The armed forces offer impressive benefits, covering everything from loans and housing to education and retirement planning. For most servicemembers, these benefits are absolutely essential for making life comfortable on a military salary. Failure to maximize these benefits will make it vastly more difficult to maintain good financial health.

In addition to being familiar with all of the unique benefits available to servicemembers, you can take a few other steps to remain financially healthy. These include:

• Create a rainy day savings fund to cover emergencies.
• Start a transition fund to help meet your expenses when you switch to a civilian career.
• Stay vigilant against scams that target servicemembers and veterans.
• Take advantage of career training, skill development, and job placement services.
• Work on your credit score to lower the money spent on fees and interest each month.
• Use your military discounts wherever applicable.
• Prepare for your spouse's income to be inconsistent (military spouses are unemployed or underemployed at a higher rate).
• Attempt to live on your active duty income and use additional income to save.

By following these steps, you can help ensure that you remain as financially healthy as possible during and after your military career.

The Takeaway

Military members must deal with financial risks and constraints that don't apply to the general public, which is one reason why they struggle with higher-than-normal levels of debt. Yet by employing smart budgeting and saving strategies and tapping into benefits reserved for military personnel, servicemembers can ensure they maintain their financial health for as long as they plan to serve. 

At some point, even the most dedicated soldiers, sailors, airmen, and Marines will end their service. Knowing precisely when to call it a career, however, isn't always easy. That's true about any organization, but it's arguably an even more difficult judgment when deciding whether to transition out of the service.

Given the importance of making the right decision, let's examine the variables that come into play when pondering when to begin military retirement.

The Financial Implications of Retirement

For most military personnel, pension qualification is the most critical factor influencing retirement age. For those who joined in 2018 or later, you'll need 20 years to qualify for a pension benefit of 40% of your final base pay. However, those who depart before 20 years may be able to claim partially vested pensions. In addition, those with 30 years of service can earn a pension benefit of 60% of their final base pay. This relatively new Blended Retirement System means that more servicemembers will receive benefits, though the 20-year pension benefit is lower than before.

In the private sector, retirement decisions are typically made when a worker reaches the age of 60 or higher. In the military, the timing is accelerated, often occurring as early as the late 30s. By this time, many military members can embark on a more lucrative second career while still drawing their pension and possibly even healthcare benefits.

Sounds like a no-brainer, right? Not quite - the decision is quite a bit more complicated for most servicemembers.

Weighing the Merits of Staying Versus Leaving

While starting a secondary career armed with your pension and benefits certainly sounds attractive, deciding when to jump can be tricky. After 20 or more years in the armed forces, servicemembers aren't always ideally suited for a seamless transition to civilian work. This can create some uncertainty regarding securing a personally and financially rewarding second career.

If you intend to join the civilian workforce, consider potential job types, likely income, and how this may impact the tax status of your military pension. Transitioning from a military to a civilian career can take time, so consider this in your planning phase.

On the other hand, staying in the military beyond 20 years usually allows you to increase your salary and pension benefits. You'll also continue to draw a (tax-free) monthly housing allowance and have access to all of the savings programs and financial benefits the military offers.

These guaranteed advantages must be carefully weighed against the potential for even greater earnings in the private sector. This is where the decision begins to hinge more on personal factors. If you've earned an advanced degree in a high-demand field while in the military, your odds of a successful transition are higher than if you have less marketable skills. In this case, it might make financial sense to retire once you reach 20 years, as you'll want as many additional years as possible to maximize earnings in your second career.

One other thing to consider: The earlier you retire, the more marketable you'll be in the civilian job market. Someone leaving the military after 35 years - with little to no private sector work experience - will likely be less in demand than someone departing after just 20 years, as the 35-year veteran lacks the time to build a long-term secondary career.

The Takeaway

Deciding when to retire from the military is a tricky proposition. The benefits of building a second career armed with your pension are considerable. Deciding to stay, however, offers greater stability and access to attractive military benefits. Either way, careful consideration is a must.

Given the complexity of retirement planning and its long-term implications, professional advice is invaluable. A financial advisor experienced in military retirement planning can provide guidance tailored to your circumstances, helping you explore your options and make informed decisions.

Keep in mind that another benefit of the Blended Retirement System is the ability to contribute to a Thrift Savings Plan, which is similar to a 401(k) and includes matching contributions from the government. If you're currently in the military, taking full advantage of all available benefits will help you secure your post-military life - no matter when it starts. 

Serving your country requires a variety of personal sacrifices, one of which is a higher risk of being targeted for scams. While most people respect the sacrifices associated with military service, scammers seize upon the special vulnerabilities attached to both active and former military personnel.

With that in mind, let's take a look at why scam artists often look to the armed services when choosing targets and how you can protect yourself and your family from these predatory schemes.

Why The Military is a Target-Rich Environment for Fraudsters

Military personnel are often targeted by scammers and unscrupulous businesses looking to take advantage of their steady paychecks and benefits. Falling victim to these scams can have severe financial and personal consequences, undermining the hard work and sacrifices made while serving your country. 

Military personnel make inviting targets for several reasons. First, scammers know servicemembers have a regular source of income. This fact makes them a ripe target not only for identity theft and other forms of outright fraud but also for activities that fall into legal gray areas, such as predatory lending.

Military personnel must also deal with a mobile lifestyle that often includes deployments. This fact can make staying on top of household financial issues a challenge, as can communication between family members - two things scammers won't hesitate to exploit.

Finally, servicemembers eagerly search for opportunities to build new careers when military careers are nearing an end. The challenge of starting a civilian career can create vulnerabilities that scammers exploit as they seek to take advantage of military personnel who are urgently pursuing new options – ranging from business opportunity scams to expensive for-profit education programs.

Common Scams

To avoid scams, it's crucial to be aware of the ones most commonly faced by military members. These include:

• Affinity Scams - Scammers may pose as fellow veterans or members of military-related organizations to gain your trust and get you to invest in fraudulent schemes.

• Pension Advance Scams - Companies may offer upfront cash in exchange for your future pension payments, often at extremely high interest rates and with hidden fees.

• Rental Scams - Scammers may post fake rental listings targeting servicemembers, often requiring upfront payment for properties that don't exist or aren't actually for rent.

• Identity Theft - Scammers may steal your personal information to open credit accounts, take out loans, or commit other forms of fraud in your name.

• Predatory Lending - Some lenders may target servicemembers with high-interest loans, such as payday loans or car title loans, which can trap borrowers in a cycle of debt.

While it's hardly fair that service to your country opens you up to greater financial risk, there are some steps you can take to protect yourself.

How to Protect Yourself 

The best defense against many scams, especially identity theft, is safeguarding your personal information. Be cautious about who you share personal details with and how. Keep your social security card, military ID, and other vital documents secure. And be wary of unsolicited emails or texts asking for personal or financial details, even if they seem to be from legitimate organizations. Real banks, government agencies, and other reputable institutions won't request this information via email or text.

A common rule of thumb is never to pay money for the promise of more money. Be skeptical of any situation where you're asked to pay upfront fees or transfer money to unknown individuals or entities. This step is particularly true for unsolicited offers, whether they come via email, text, or even snail mail. Other tips for avoiding scams include:

• Monitor your accounts online as frequently as possible, looking for unauthorized charges.
• Check your credit reports at least once per year for free at the government-mandated AnnualCreditReport.com website.
• Consider an "active-duty" alert on your credit report, a free service for military members that can reduce the risk of identity theft.
• If you are exploring hiring a financial advisor, verify their history and reputation before allowing them access to your accounts.
• Consider signing up for a credit union that caters to the military.

Military members should also take advantage of the numerous free and discounted services that outside organizations offer. The Office of Financial Readiness and Military OneSource provides financial counseling services, while the Consumer Financial Protection Bureau's Office of Servicemember Affairs provides information about common scams targeting military members. Additionally, you can report scams to your superior officers, the local military police, or the Federal Trade Commission.

Finally, remember that all servicemembers are eligible for an emergency relief fund loan. These small, interest-free loans can be invaluable in an emergency (and for avoiding scams).

The Takeaway

Serving in the military is a noble undertaking. Unfortunately, it can also expose one to heightened financial risks. 

By staying informed about common scams, being cautious with your personal information, and seeking guidance from military resources when needed, you can protect yourself and your finances from those who seek to take advantage of your service.

Remember, if an offer seems too good to be true or pressures you to act quickly without time for research, it's likely a scam. Trust your instincts, and don't hesitate to seek help if you suspect fraudulent activity.

As a military member, saving money may seem daunting, especially when faced with the unique financial challenges of military life. However, you can build a strong foundation for your financial future by taking advantage of the various savings opportunities available to servicemembers and implementing smart financial strategies.

Let's review some of the best savings opportunities available to servicemembers to help you get the most out of your compensation while on active duty.

Understand Your Pension

The cornerstone of any long-term savings strategy is a retirement plan. While defined benefit pension plans have fallen out of favor in the private sector, military members still have access to a 20-year pension. For those who joined in 2018 or later, pension benefits may also be available before 20 years of service, and benefits can increase substantially for those with more than 20 years of service.

There's a wrinkle, however - no partial vesting exists for those who joined before 2018. If you depart after 18 years, you'll lose everything you've accrued. Despite the longer time requirement for some servicemembers, military pensions still represent an enormous opportunity, as you can potentially hit your 20-year mark at age 38 - with plenty of time to start a second career.

While military salaries may be lower than public-sector salaries, military pensions are far more generous than most private-sector ones. Anyone in the service seeking to maximize their savings should consider taking full advantage of this attractive benefit.

Participate in the Thrift Savings Plan (TSP)

The Thrift Savings Plan (TSP) is a powerful savings tool for military personnel. Like a 401(k) plan, the TSP allows you to contribute a portion of your income to a tax-advantaged retirement account. Key benefits of the TSP include:

• Low fees - The TSP has some of the lowest administrative costs among retirement plans, which means more of your money stays invested for your future.
• Tax advantages - Traditional TSP contributions are made with pre-tax dollars, reducing taxable income. Roth TSP contributions are made with after-tax dollars but offer tax-free withdrawals in retirement.
• Matching contributions - Under the Blended Retirement System (BRS), the military matches a portion of your TSP contributions, providing an instant boost to your savings.

To maximize your TSP savings, aim to contribute at least enough to receive the full employer match and gradually increase your contributions over time.

Leverage the Savings Deposit Program (SDP) During Deployment

The Savings Deposit Program is a unique savings opportunity for servicemembers deployed to designated combat zones. The SDP allows you to deposit up to $10,000 and earn a guaranteed 10% annual return on your investment. This high-yield, risk-free return is unmatched in the civilian world, making the SDP a valuable tool for building savings during deployment.

While this program isn't available to everyone, the guaranteed return makes it one of the military's most attractive savings tools.

Explore Military Banking and Savings Products

Many banks and credit unions offer specialized products and services tailored to the needs of military personnel. These may include:

• High-yield savings accounts with no minimum balance requirements or monthly fees.
• Low-interest loans and credit cards with reduced fees and SCRA benefits.
• Exclusive financial education resources and tools.

By taking advantage of these military-specific banking and savings products, you can stretch your budget further and save more of your hard-earned money.

Automate Your Savings

One of the most effective ways to consistently save money is to automate the process. By setting up automatic transfers from your paycheck to your TSP, SDP, or other savings accounts, you ensure that your savings grow with each pay period. Automating your savings helps you build wealth consistently over time without relying on willpower or remembering to make manual transfers.

Understand Military-Only Benefits

While, admittedly, military salaries aren't the most generous, the benefits are another story. Aside from standard military discounts offered by retailers, members of the armed forces can:

• Save money for college with the GI Bill (sometimes these benefits are transferable to a spouse or child).
• Buy inexpensive life insurance, which is available only to service personnel.
• Access special mortgage deals from the Veterans Administration.
• Save money that would otherwise be spent on rent or a mortgage thanks to the military's Basic Allowance for Housing.
• Receive special tax breaks available to military members.

By taking advantage of the myriad discounts and programs available, military personnel can stretch their incomes much farther than someone in the private sector. By combining smart savings with one of the military's attractive retirement plans, service personnel can put themselves in a great position when they are ready for a civilian career.

The Takeaway

Saving money while serving in the military requires discipline, planning, and a proactive approach to leveraging your unique resources and opportunities. By participating in the TSP, utilizing the SDP during deployment, taking advantage of military banking products, and automating your savings, you can build wealth consistently throughout your military career.

Remember, every dollar saved today is a step towards a more financially secure future for you and your loved ones. By prioritizing savings and making informed financial decisions while serving, you'll be well-positioned for success in your military and civilian life.