Military Saves Week: Taking Advantage of the Financial Benefits of Deployment

By Carol Church

As every member of the military knows, being deployed can be stressful, intense, and difficult. However, it also comes with one advantage: increased pay. In some cases, service members may also experience a significant decrease in living expenses.

Extra money from deployment can get service members out of debt, dramatically bump up savings, and create financial security where there was none. However, handled imprudently, extra earnings from deployment can also set up a financial house of cards or disappear into unwise purchases. Here are some tips to help service members max out the financial advantages of deployment while also staying financially on track.

First, decrease expenses as much as possible:

–Cancel, suspend, or reduce car insurance on any vehicles (including motorcycles) that will not be used during a deployment. You will need to consider storage options; if the car will be exposed to the elements, there are special policies you can switch to that cover weather damage only (available through USAA).

— Cancel or suspend cell phone service, cable TV, and home phone (if applicable). Under the terms of the SCRA, service members who are deploying must be given a penalty-free exit from contracts like these. Of course, if you have a family at home using these, this may not apply!

–Reduce the interest on your mortgage and any outstanding credit card loans to 6% under the SCRA. Typically, the credit card debt must have been incurred or the mortgage initiated before entering service for this to work. Also, be aware that this does not happen automatically-you must file paperwork. To learn more, visit SCRA Questions and Answers.

Photospin/lev dolgachov

Second, put that money away:

–Save in SDP

One of the most amazing benefits available to deployed service members is the Savings Deposit Program. Service members deployed to eligible designated combat zones can put up to $10,000 per deployment in this account, tax-free, and it will earn 10% interest annually as long as you are in the combat zone. Funds will be returned to the service member after he or she returns (or before in cases of emergency). This is an incredible rate of return that no one should pass by.

–Save in the TSP or Roth IRA

When the new blended retirement system comes online, many service members will already be automatically contributing to and getting matched funds for TSP. However, it will still be possible for most to increase the percentage they contribute during this time period. Be aware that there is an annual limit for both TSP and Roth IRAs.

Third, don’t overspend:

A common but very dangerous error is to readjust the family discretionary spending upwards around the temporary additional pay, or to do something like building an addition, buying a brand-new truck, etc. The USAA recommends that service members put away a full two-thirds of their additional deployment pay, and strongly cautions service members against incorporating past earned deployment pay into new budgets when they return.

Deployment can be a difficult time for service members and their families, but it does come with the benefit of increased income. With care and forethought, service members should be able to make progress towards their financial goals during this time.

Just Do a Few Key Things Right

By Barbara O’Neill, Ph.D., CFP®, Rutgers Cooperative Extension, oneill@aesop.rutgers.edu

Photo by Endemoniada. CC BY 2.0
Photo by Endemoniada. CC BY 2.0

Personal finance does not have to be complicated. Rather, most people can manage their finances quite well by doing just a few key things right. Below are ten suggestions to consider as New Year’s resolutions to improve your personal finances during 2017:

  1. Spend Less Than You Earn– Live below your means. The only way to “find” money to save and invest is to have money left over after expenses. Shop around for bargains (e.g., online promo codes, price matching, and consignment and thrift shops) and ask yourself whether you really need something before you buy it.
  1. Save at Least 10 Percent of Your Income- Put money into savings automatically via payroll deduction or electronic fund transfers. Many people who have money taken out of their paycheck, for retirement, or their checking account, to invest in mutual funds, say they never miss the money and are a lot more financially secure. If 10% savings is not possible now, save whatever you can and gradually ramp up your savings level over time.
  1. Invest for the Long Term- Don’t trade too much; market timing is very difficult. If you don’t have the time or energy to research individual stocks, keep things simple and invest through no-load mutual funds, index funds, or exchange-traded funds. Never invest with cold-callers and be very skeptical of investments that sound like “guaranteed” winners. Stick with reputable companies and experienced and well-vetted investment advisors.
  1. Don’t Run Up Your Credit Cards– Going deep into debt for clothes, travel, or restaurant meals will not impress your friends. Instead, impress them with your kindness and sense of humor. Monthly payments on all consumer debts combined (excluding a mortgage) should not exceed 15% -20% of monthly take-home pay.
  1. Set Goals- What are you saving for? A nice house? Retirement? College for your children? Keep your eye on your goals and it will be easier to make sacrifices (read: spend less) to reach them. Use this worksheet as a goal-planning tool. Calculate the savings required to reach your goals by dividing the time to save into the dollar cost.
  1. Purchase Insurance Wisely– Examples of generally unnecessary insurance include extended warranties on appliances and low deductibles on property insurance. Rather, cover big financial risks including adequate liability insurance and disability insurance to protect your family if you are ill and can’t bring home a paycheck.
  1. Be Patient– Similar to the progression to large prizes on the TV show Who Wants to Be a Millionaire?, it usually takes people a long time to build wealth. The average age of millionaires is 60, meaning that they’ve been investing for about three or four decades. Using the Rule of 72, if an investor earns an 8% average return on a diversified investment portfolio, their money will double in nine years (72 divided by 8).
  1. Dollar-Cost Average Investment Deposits– This means investing a regular sum (e.g., $100) at a regular time interval (e.g., monthly), preferably through automatic deposits such as payroll deductions for the Thrift Savings Plan (TSP). Dollar-cost averaging avoids bad market timing and takes the emotion out of investing because regularly scheduled investment deposits take place automatically regardless of market conditions.
  1. Limit “Shocks” to Finances– Financial shocks include frequent job changes, moving, home purchases, health care expenses, and divorce. Conversely, stability aids in wealth accumulation. Try to control what you can (e.g., good health habits). Unfortunately, military families often move frequently and this lifestyle needs to be factored into decisions such as renting vs. buying a home and a military spouse’s career path.
  1. Congratulate Yourself for Making Progress– If you hear that you need, say, $500,000 or $1 million to retire in comfort, you might feel too depressed to try to save anything. Instead, celebrate milestones such as paying off your credit cards or saving $1,000. You have a lot to be proud of as long as you’re headed in the right direction.