Many Americans struggle with their finances, and military members are no exception. The difference, however, is compounded by the lifestyle required of military members. It’s not uncommon, for example, for military families to move every few years, or for the servicemember to deploy away from his or her family for months at a time. These conditions can make it difficult on family members, particularly for military spouses who may have a more difficult time advancing in their career or finding work with frequent moves.
This is why Military Saves Week is beneficial for military members and their families. This program highlights the need for military members and their families to create a savings plan and reach their financial goals.
What is Military Saves Week? Military Saves Week is a joint program between the DoD and AmericaSaves.org. The program is designed to help bring awareness to good financial habits, saving, and investing. You can learn more at MilitarySaves.org, or learn more about a similar initiative called American Saves Week.
Military Saves Week
Here are some of the major points highlighted during Military Saves Week:
Save for Emergencies. Creating an emergency fund is one of the most important things you can do from a financial perspective. The idea is to save until you have at least $1,000 saved in an account where you can access the funds in an emergency. $1,000 is a recommended starting point because it is large enough to help pay for most medium size emergencies, such as replacing an appliance, paying a car insurance deductible or for minor car repairs, a flight home for a family emergency, etc. Having these funds available can help you avoid using a credit card or taking out a high interest loan and digging yourself further into debt.
Pay Off High-Interest Debt. Once you have your emergency fund in place, it’s a good idea to start working on eliminating any high-interest debt you may have. For example, you want to pay off any credit cards or other loans with high interest rates. Paying off your debt does two things: increases your cash flow and gives you an automatic return on your investment. With more cash flow each month, you can pay off the rest of your debt more quickly, or get started on the next step: saving.
Save Automatically. It’s great to have a savings plan at all times. But it may not be a good idea to ramp it into overdrive until you pay off your high-interest debt. This is because any debt you pay off gives you an automatic return on your investment. With current interest rates so low, it makes sense to use as much of your cash flow as possible to repay debt. But once your debt is gone, it’s a good idea to ramp up your savings. There are a couple ways you can do this. The easiest way is to make it automatic.
Save for Retirement. You can save for retirement while you are saving for other goals. The key is to find a balance. A great way to get started is to save a portion of your paycheck in your Thrift Savings Plan, or in a 401k or other employer sponsored retirement plan. Opening a Traditional or Roth IRA is another good idea, as both of these offer excellent long term tax benefits.
Save for a Large Purchase. Banks are incredibly kind. They are often happy to let you make a major purchase with no money down. Isn’t that wonderful of them? Don’t fall for it! Making a large purchase with no money down does two things: increases the amount of money you have to borrow, and increases the amount of interest you pay over the life of your loan. It’s always best to pay cash when possible, or at least make a large down-payment. It’s also a good idea to keep the loan terms as short as possible. In other words, don’t go for a 7 year car loan. Buy a less expensive car if you can’t afford a shorter term.
Home buyers often have the choice of a 15 or 30 year mortgage. Buying a home with a 15 year mortgage is often a good idea if you can afford the monthly payments, but a 30 year mortgage may give you more long-term flexibility. Go with the one that best fits your budget, but always try to make a down-payment if you can. This will help reduce your payments and the amount of interest you pay over the course of your loan. Final note about home loans: you can buy a home with no money down when you use a VA Loan. This isn’t usually recommended since it increases the amount of money you are borrowing. Always try to make a down-payment when possible.
Take some time, create a plan, take action
Everyone has a unique personal and financial situation. Because of this, there is no one-size-fits-all savings plan. It’s up to you to examine your situation and create a plan that works. But there is help available. Almost every base has someone who can help you look at your budget and find areas where you can cut back on your expenses so you can funnel that money toward savings or paying off debt. If you are no longer in the service, you can visit a fee-only financial planner or a non-profit debt-management organization to come up with a solution to help you reach your financial goals. The key is recognizing that you need a plan, and then taking action.
Here are some more resources about Military Saves Week:
- Personal Financial Tips for Military Families During ‘Military Saves Week’.
- Military Saves.org – Tips for Savers
- Consumer Financial Protection Bureau – Servicemembers page