This 4th of July, Americans will raise a toast to our country’s democracy—and to the military members who risk their lives to protect it. While military members plot and strategize to keep civilians safe, there’s one area where they need unique assistance: Financial management and planning.
For enlisted military servicemen and servicewomen, a lifestyle combining frequent moves, risky deployments, and the competing logistics of domestic partnerships combining one or more military careers can make managing money complex. And for veterans who have completed their service, tapping the financial and medical benefits that exist specifically for the military can require some analysis and careful timing.
Unfortunately, a new study from FINRA indicates that veterans may be more likely to suffer credit problems than their civilian peers—but with some early financial training and education, military and vets’ penchant for saving and discipline can position them for financial success.
Indeed starting in 2007, a group called Military Saves began developing apps and tips to encourage better financial habits among service members
If you’re enlisted in the military or are a veteran, here are some unique considerations to run past a planner—and conversations planners may want to start with you.
Learn to budget, manage credit, and control debt
Every adult needs to learn to budget, manage their credit, and control their debt. But service members have extra reasons to learn these lessons early. Indeed, if they start managing their money well early, in many cases they will have advantages some civilians don’t.
“If you’ve enlisted young—and some service members start at 18—and you receive food and housing, don’t blow all your disposable money on a car,” says Rita Cheng, certified financial planner and CEO at Blue Ocean Global Wealth in Gaithersburg, Maryland. “You can start by learning to pay yourself, through savings, or open a Roth IRA. Yes, you can have a car—but maybe a modest car.”
Another reason credit and debt are important for the military: Frequent moves and travel may mean that service members will need to rent apartments, finance car purchases or leases, and otherwise use consumer debt wisely to get the best rates and manage through down times. Ms. Cheng notes that household military pay and budgeting can shift during deployments and that a non-military partner’s earning ability can also shift both during deployment (perhaps they now have extra childcare duties with a partner out of town) and due to moves (while the military household member’s job has transferred, their spouse may need to reinvent their work life with each move).
Consider your shifting costs of living
Another consideration: When military members move, they frequently move between markets with very different costs of living. Going from the suburbs of a major metro area to a rural outpost may mean that housing costs go down—but so, too, income levels and job prospects for a partner, meaning household income is impacted. Similarly, in one market a car might be unnecessary and in another it might be more or less required.
Both Ms. Cheng and Aaron Rubin, a planner with Werba Rubin Wealth Management in San Jose, California, recommend that enlisted service members keep cash reserves and liquid investments that can be tapped (rather than debt) as their budgets adjust to these fluctuations.
Rubin also recommends that military spouses pursue work with a company that has nationwide locations or where telecommuting is a possibility, so that work-related benefits with a single employer accrue over time. Alternatively, if they can develop a remote-based career, there are advantages to this especially if a spouse’s military-required moves are frequent.
Tap military-specific benefits
From credit unions like Navy Federal and lending and insurance organizations such as USAA, from big box stores to airlines and mobile phone plans, from free National Parks passes to access to airport lounges, veterans are afforded a variety of discounts and special products by companies that want to recognize them not just as the country’s protectors but also as a consumer class. They can tap the GI Bill for college support. They can tap Veterans Administration 0% down home mortgage loans, educational benefits, and other perks.
There’s just one problem: Not all benefits are appropriate at all career stages.
Rubin worked at a Northern California Air Force base earlier in his career and saw firsthand the consequences of overzealous home purchasing by enlisted service members who tapped popular Veterans Administration (VA) 0% down mortgage loans to buy houses in the base’s vicinity—only to face complicated financial consequences when they moved just a few years later. While a 0% down mortgage makes home buying accessible, those who bought before the real estate boom faced capital gains consequences—and those who relocated during the real estate bust found themselves “underwater” (owning a home worth less than they paid for it, or having “negative equity”) and forced to consider either renting the place at a loss or considering bankruptcy. Even without a real estate boom and bust, buying a home and staying just a few years often is more complicated than beneficial, he says.
“Even though you may be moving every few years or changing things up, you always have to think of the long-term consequences of what you’re doing right now,” Rubin says. “If you’re relocating every two to three years, you have to think about the costs to own under those circumstances.”
Homebuying, Cheng says, should wait until a buyer can stay in one place at least three years.
Always consider your next act
Military service’s physical and lifestyle demands and pressures may mean service may not be a “forever” career. Those who are enlisted in the military or preparing to exit need to always consider their next act, not just in terms of personal fulfillment but financial positioning, Rubin notes.
Military are eligible for a Thrift Savings Plan – TSP, accessible retirement plans (resembling those that government workers receive), but unlike civilian pension plans these plans are available to veterans earlier in their adulthood. Cheng says that her cousin, who joined the military at 18, retired at 43 after 25 years and now receives a military pension—a nice base atop which to build his “second act.” Separately, she has a 56-year old client with a military background who lives on a mix of her pension and contracting positions, which combined will meld with her Social Security to support her in retirement.
On the flip side, Rubin says he knows enlisted service members who didn’t adequately factor in the risk of needing an honorable medical discharge—which can abruptly abbreviate a military career and short-change the level or amount included in future pension or medical benefits.
“You’ve got to always be thinking about your next job, even if you’re content in your job,” he says. “Some jobs translate to civilian work and some don’t.”
Enlisted and veterans’ household balance sheets can differ somewhat from their civilian counterparts—and they face different sources of uncertainty, too. Planning can help address the risks of frequent moves and housing costs, while building for a secure future supported with military-specific benefits.
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