Joining the military is one of the greatest adventures you will ever experience. But life changes significantly once you join the military.

One common experience many military members have is that they are earning more money than they have ever earned before, and there is no one telling them how to manage it. To top it off, much of the income is considered disposable income (meaning you can spend it on anything), because your basic needs such as food and housing are covered by the military. I have seen many young military members get trapped under debt because they managed their money poorly.

Money Management Tips for the New Recruit

If there is one key to financial success, it is this: spend less than you earn. There is no way to achieve wealth, or even a comfortable standard of living, if you cannot follow that single rule. There are several other keys to financial success, which I will outline below.

Spend less than you earn. Many new recruits get swept away by their first real paycheck, but they don’t understand how easy it is to spend it all and have nothing to show for it. A few small monthly payments add up quickly. A cell phone, car payment, car insurance, gas, internet, cable, and other services can easily add up to several hundred dollars per month – making your paycheck disappear more quickly than you thought it would.

The first thing you should do is set up a basic budget by tracking your spending for the first few months to help you get an idea of how much money you are bringing in after taxes and how much you are spending on regular expenses (the bills mentioned above) and irregular expenses such as haircuts, uniform expenses, eating out, etc. Then you will have a good idea of  how much you can spend without spending too much every month.

You can set up a budget with a notebook and paper, or use a software program such as You Need a Budget to help you create and track a budget.

Build an emergency fund. I recommend everyone start an emergency fund to be used for any unexpected expense that needs to be handled quickly… things like a plane ride home, car repairs, etc. You should keep it in a regular savings account so you have access to it quickly, but you shouldn’t use the funds for things like pizza and beer. It should only be used for emergencies. How much should you put in your emergency fund? It depends on your needs, but I would recommend enough to cover a last minute airline ticket or similar expenses, or about $1,000.

Save money. In addition to an emergency fund you will want to save money for other things. Maybe you want to buy a car in the near future, plan a vacation, or buy that special girl a ring… It’s up to you. But it’s better to have some money saved so you don’t have to go into debt.

Avoid Debt. Once you have your basic budget working, try to stick to it to avoid getting into debt. Debt can have a negative impact on your financial future, and excessive debt can get you discharged from the military. If you can’t afford it, then wait until you can. Remember, the key to financial success is spending less than you earn.

Be careful with credit cards. Credit cards are good when used as a tool, but they can get you into a lot of trouble very quickly if you are not careful. Learn how credit cards and debit cards work and learn about the pros and cons of using credit cards. Be sure to only charge as much as you can pay off each month.

Build a good credit score. Responsible use of credit and credit cards can help you establish a good credit score and save you thousands of dollars later in life, because you will be able to obtain loans at more favorable interest rates. When I was in the military, a friend bought a car at almost 20% interest because he didn’t have good credit. That cost him several thousand dollars more over the life of the loan than it should have cost. That is several thousand you can use for more important things.

Start saving for the future. The military pension plan is one of the most generous retirement systems you will ever find. But you may not stay in the military long enough to earn military retirement (20 years). in the mean time, start saving and investing for your future by opening a Roth IRA or participating in the Thrift Savings Plan (government version of a 401k plan). Even a couple hundred dollars in savings per year can grow into thousands of dollars by the time you reach retirement age.

Bonus tip: How to handle a military bonus

Many new recruits or military members who reenlist will receive a bonus. There are a lot of things you can do with your bonus, but before you spend it, remember this: you can only spend it once. It is common to think of all the things you can do with the money and then trick yourself into believing you can do all of them.

Before spending your money thing about any debts you might have, your needs, and your wants. I would recommend putting a large portion of your bonus toward any debts you have. If you don’t have any debt, then I would recommend using a large portion of your bonus to start an emergency fund (say $1,000 or so), then I would consider saving for things you may need, such as working toward a large ticket item like a car, or something similar. The last thing you want to do is not have anything to show for it because you spent it all on video games and bar hopping. You can read more ideas about your bonus in this article: Reader Question: “What Should I Do With My Reenlistment Bonus?”.

For more tips on building a solid financial future, I recommend reading and beginning Dave Ramsey’s Baby Steps, a plan to set you up for financial freedom including getting out of debt, starting an emergency fund, investing, and more.

The US economy has been going through difficult times for well over a year now, with stock prices plummeting, real estate foreclosures at all time highs, and unemployment levels higher than they have been in decades. The US government passed a broad economic stimulus package in early 2009 to help people cope with these issues, and today I have a question about how the 2009 stimulus package assists people with COBRA medical benefits.

Carol writes:

I was let go of my job on July 3, 2009. I am now receiving unemployment benefits and I pay 675.00 per month for Cobra medical benefits. The 675.00 monthly includes medical, dental, and eye care. Am I eligible to receive a reduced rate on the Cobra health insurance due to the stimulus package? What are my responsibilities and the employers responsibility to receive these benefits. My employer has not notified me of any changes in my Cobra benefits or payments presently.

Hello Carol,

I’m sorry to hear about your layoff. While the economy has improved in some places, it looks like we are still a long way from a full recovery. The 2009 stimulus plan passed by the Obama Administration included some provisions for unemployment and COBRA benefits. You can read more about these benefits in this article: 2009 Economic Stimulus Plan Unemployment Benefits.

COBRA benefits subsidy – 2009 stimulus plan

As part of this stimulus bill, the government will subsidize 65% of the COBRA premiums for workers who were laid off between Sept. 1, 2008, and Dec. 31, 2009. The company is required to provide the 65% subsidy, and will later receive a reimbursement from the government. This is fairly new, so many companies may not yet be aware of the subsidy, or how it works. Be sure to contact your former Human Resources department, and have patience while they learn the new process.

The stimulus package also provides additional funding to supplement the level of Medicaid available to unemployed workers who cannot sign up for COBRA Coverage because their former employer did not offer a health care plan or who cannot afford health care.

Additional unemployment benefits

Unemployment benefits were also increased as part of this stimulus package. Some of the benefits include:

• Longer duration of unemployment benefits. Additional 20 weeks of standard unemployment benefits, and up to 13 more weeks on top of that for unemployed workers living in a “high unemployment state.”
• Increased unemployment benefits. Temporary increase of $25 per week.
• Tax exemption of some unemployment benefits. Federal tax exemption of the first $2,400 of unemployment benefits paid in 2009.

Additional unemployment benefits and COBRA benefits information:

For more information about COBRA benefits extensions please visit the Department of Labor:

• COBRA Continuation Coverage Assistance Under The American Recovery And Reinvestment Act.
• FAQs About COBRA Continuation Health Coverage.

General information about unemployment benefits and COBRA benefits:

• Unemployment Benefits – How to File and Other Frequently Asked Questions.
• What is COBRA Insurance?

Best of luck to everyone who is searching for new work.