Smart Financial Moves Every New Service Member Should Make

cash-dietingA Soldier’s life can be full of challenges, from the nuisances of military life to the separation anxiety often referred to as being homesick. Being a Soldier is chock full of hardships, yet money should never be the cause of them.

Whether you’ve just enlisted as a high school senior or getting ready to report to your first assignment, you’ll need a smart money strategy to help you establish your financial foundation.

Your first few years of service is the perfect time for you to develop sound money habits that will enable you to save for emergencies, steer clear of credit card debt, avoid military loan traps and develop a long-term plan for financial independence.

Here are the 8 Smart Money Moves Every New Soldier Should Make:

Get Promoted Before Basic Training

Army Advanced Promotions

New recruits typically enter the service as an E-1. That’s a Private for the Army and Marines, Airman for the Air Force and Seaman for those enlisting in the Coast Guard and Navy.

Regardless of the branch of service, one thing is candidly clear. An E1 is the lowest rank in the Military and also the lowest paid. With the pending 1.6% pay raise for 2017, a recruit will start out earning $1,473 per month (before taxes).

However, many individuals wishing to enlist into the Military can qualify for advanced enlistment and earn a promotion before departing for Initial Military Training (IMT).

Since I’m an Army Recruiter, I can talk about the qualifications needed to join the Army as an E-2:

  • Complete 2 or more years of Junior ROTC
  • Complete 1 year of Senior ROTC
  • Attend a Military Service Academy for at least 150 days
  • Complete 24 or more semester hours of college at an accredited college or university
  • Complete all requirements of the Air Force Civil Air Patrol and receive the Billy Mitchell Award
  • Participate in the Naval Sea Cadet Corps and receive the NSCADM 024 (Cert of Advancement)
  • Earn the Boy Scout Eagle Certificate as a member of the Boy Scouts of America

Oh and for those of you fresh out of high school and who’ve never heard of ROTC, there’s one other option. You could also earn a promotion by passing a physical fitness test, completing the Future Soldier Pre-Execution Checklist and referring a friend (or enemy) to your recruiter.

Earning a promotion to E-2 would increase your earnings by $1,472, during the first six months of your enlistment.

During this time frame:

  • An E-1 will earn approximately $9,076
  • An E-2 will earn approximately $10,548
  • An E-3 will earn approximately $11,256

Getting promoted before Basic Training is a really smart move…

 

Make USAA Your First... And Only Bank

Best Bank For Military

In the delayed entry program, new enlistees have several critical requirements, establishing direct deposit with a financial institution is one of the most important.

As a member of the United States Military, you’ll quickly understand that you have unique banking needs. During your career, you’ll experience deployments, frequent moves, and unpredictable work hours. Your financial situation will be in a constant state of flux, and ordinary affairs will become much more complicated.

Open a Free USAA Secure Checking Account TodayWhile your family members will recommend “the local bank,” it might not be the most ideal. Even some of the big brands like Chase, Wells Fargo, and Bank of America all attempt to cater to Military, yet they often fall short and fail to live up to our expectations.

You’ll need a Financial Institution that will fulfill all of your unique financial needs.

I recommend USAA because unlike traditional banks, they understand what we do for a living.

USAA has excellent customer service, a 100% free checking account, smart money management tools, no ATM fees, and pain-free web banking. They also have a host of other products; from auto and renters insurance to credit cards and low-interest loans.

I’ve been a USAA member since 1999 and I believe it’s one of the smartest moves a new Soldier could make.

Are you a member?

 

Do A Little Goal Setting

short term

short term

We all need goals; short term, near, and even long term.

Now, I’m not saying that you need to develop a roadmap for your entire life. Heck, feel free to change them.

However, every Soldier should have an idea of what direction their life is headed. Is the Military a career of a short term experience?

All things considered, jot down how you view visualize yourself living in a year, five, ten and then after retirement. Your goals are YOUR GOALS! They can be anything you want but here are some points to consider.

  • Your family dynamic (marriage, kids, etc.)
  • Vacation and Travel plans
  • Your future in the Military
  • Your educational goals and certifications
  • Major purchases (cars, property, etc.)
  • Purchasing a home

 

Leverage The SCRA

In 2003, the Servicemember’s Civil Relief Act (SCRA) was updated and replaced the Soldiers and Sailors Civil Relief Act of 1940. The SCRA is a federal law that provides important protections as you prepare to enter active duty.

The benefits are outstanding and will enable you to terminate leases, avoid court cases and lower interest rates:

The Six Percent Rule: Under the SCRA a Soldier can request to lower credit card interest rates, and other consumer debt to 6% under certain circumstances. In addition, some companies will provide reimbursement for fees and interests paid.

Termination of Leases: This benefit helps you to terminate a lease prior to shipping to Basic Training. Additionially, the act will allow you to terminate a residential lease anytime you receive permanent change of station (PCS) orders.

This protection covers leases occupied by a Soldier or his/her dependents for a residential, professional or business.

In order to terminate a lease under these provisions, you’ll be required to make the request in writing and include a copy of your orders.

The termination date for a lease that requires monthly rent, the earliest termination date is 30 days after the first date on which the next payment is due, following proper notification of termination of lease. For example, if Sgt John pays his rent on the first of every month, and he notifies his landlord (and gives the landlord a copy of his orders), on the 18th of June, that he wishes to terminate the lease under the provisions of the SCRA, the earliest termination date 1 August (the next rent is due 1 July, and 30 days later is 1 August).

Delay of Court and Administrative Proceedings: The SCRA permits active duty Soldiers who are unable to appear in a court or administrative proceeding due to their military duties to postpone the proceeding for a mandatory minimum of ninety days upon the Soldier’s request. This provision specifically includes Child custody hearings.

 

 

Start Saving

Thrift Savings Plan

I know that you’re still new to this Military thing, and retirement isn’t even a blip on your radar screen. But here’s a secret… It will never be easier to start saving than right now.

The earlier you start saving, the longer you’ll get to enjoy the magical phenomenon of compounding interest.

As a member of the Military, you have access to the Thrift Savings Plan (TSP). Recognized as one of the “best perks available” to Service Members, the TSP is an investment plan and retirement savings offered to members of the Military.

This is even more important for those considering the upcoming Military Blended Retirement Plan.

Being a newb, your military duties have priority, and you should work to simplify the rest of your life. Doug Nordman suggests passively-managed index funds with low expense ratios. Now, I trust Doug especially considering that he became a millionaire off of a Military salary.

Here’s what he has to say:

You can only control two factors of your asset allocation: diversification and fund expenses. For new servicemembers that boils down to passively-managed index funds with low expense ratios. Conveniently, the federal government’s Thrift Savings Plan fills all of those requirements.

It’s the world’s largest collection of passive index funds with the world’s lowest expense ratios. The TSP doesn’t have all the features and convenience that you can find with investments from financial companies like Vanguard and Fidelity, but the TSP’s expenses are less than half of the funds from those industry leaders.

Yet even the TSP has two types of accounts, five main funds, and several “lifecycle” funds. Which should you choose?

Again, let’s start with a simple answer. The traditional TSP will shelter some of your income from taxes, but right now you don’t need that. When you do your tax returns, you’ll have enough deductions and credits to pay very few taxes. You’ll be an E-6 or an O-3 before your tax bill starts to rise.

One nasty side effect of the traditional TSP is that you’ll eventually have to pay taxes on its withdrawals (much later in life). However you can avoid that issue today by putting your contributions in your Roth TSP account.

You’ll probably use the traditional TSP later in your career, but for the next few years the Roth TSP offers more advantages.

Now you’ve chosen your TSP account. Which funds do you want?

If you don’t know which funds are best (and maybe you don’t really care) then pick the L2050 fund. It’s a mix of the TSP’s five main funds, and the L funds automatically adjust their asset allocation over time.

Right now, at the start of your career, it’s an aggressive combination of stock indexes (the C, S, and I funds) with a little bit of bonds and government securities (the F and G funds). As the years go by, an L fund will gradually cut back on the stock funds and gradually boost the bond funds.

If you want to invest even more aggressively (because you have a steady paycheck for the next few years) then you could split your TSP contributions among the C, S, and I equity funds.

To add a little flavor, here’s what a couple of other financial guru’s had to say about the TSP.

 

Use Cash... For Everything

cash-dieting

As far as I’m concerned, being able to pay cash for everything is a mind-blowing experience. Develop the habit and you’ll be surprised with the results.

Call it a cash diet. Unlike other diets this one requires you to set aside your debit and credit cards and use old fashioned cash to cover your daily expenses. By limiting your spending to what’s “actually” in your wallet, you’ll be more likely to stick to a budget and less likely to make impact purchases with plastic.

Paying with cash forces you to think about the things you spend your money on and promotes the use of a budget.

Use a Budget

Personal budget

Personal budget

Once you’re earning the big bucks, you’ll have to figure out how to spend it. Without a budget, you risk overspending on silly items and failing to save for big ticket purchases.

It’s important to separate your wants, your needs and your dreams.

To begin, lay out all of your daily expenses (go go juice, gas to your battle buddy,  and food outside of chow hall) and those recurring payments (cell phone bill, Netflix, etc). When you have an idea of where all your money is going, you can easily see how to cut costs.

Next, consider your short and long term savings goals (above and beyond the TSP), such as an emergency fund.

If you want to digitize your budget, take a look at Mint.com or feel free to track things using this spreadsheet.

 

 

Don't Get Married For The BAH

dreaded-dependapotamus

This image has been floating around the internet since I was a young Soldier. To protect the innocent, I attempted to hide their faces.

While this may come across as a joke I’ve seen it happen. PFC Smith is tired of living in the barracks and he wants his own space. Unfortunately, his Commander’s policy is that all unmarried Soldiers will reside on post.

Smith, gets the bright idea to start shopping around for a low-cost spouse. He’ll posts an ad on craigslist or solicit another Soldier to join him in contract-marital bliss.

Amy Bushatz says:

Contract marriages are one of the great myths of the military that is actually a little true but we don’t like to think about it — kind of like the broom on the porch myth or the myth of block leave (I kid about that last one … sort of).

You hear about it or you have a friend who has a friend that totally lived next door to someone who did that.

But you never really know about it first hand.

A military contract marriage is the practice of a service member marrying someone (sometimes another service member) just to land additional military benefits.

For service members the housing allowance goes up after a marriage and those who would otherwise be living in the barracks are paid to move into family housing on or off base. 

For a civilian spouse, he or she gets health care and commissary privileges as well as access to a variety of other military benefits like employment help.

And, like all marriages both in and out of the military, if the civilian spouse is not a U.S. citizen, he or she can apply for a green card based on the marriage.

I’ve run across several young Soldiers seeking to marry just for the BAH. While it begins as a great business relationship, it often comes to a disastrous end, resulting in an early separation from service and a government debt with a short repayment period.

 

About the Author Curtez

I’m a Recruiter assigned to Houston, Texas, with over fifteen years of experience. I’m standing by to answer your questions about the enlistment process.

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