I get the honor (and big responsibility) of serving military service members in my practice all the time. My clients range from young couples with one income and new enlistees to reservists and retired vets. Everyone’s situation is unique – but sometimes certain situations rhyme. When analyzing what to cover for this article, I was having difficulty figuring out what to focus on. I asked my clients what they struggle with most at the intersection of personal finance and the military. Here’s what I found – under each subject is a detailed discussion of the issue and some strategies for alleviating it.
TOP FIVE CONCERNS:
- Automotive Expenses. Car Payments, Gas, Insurance, and Maintenance.
- Building Credit and managing debts while working.
- Not making enough during the early years of service.
- What happens to my family if something happens to me?
- Healthcare planning for late-life and injury scenarios.
AUTOMOTIVE EXPENSES, CAR PAYMENTS, GAS, INSURANCE, AND MAINTENANCE
The first challenging thing I uncovered was the stress and uncertainty surrounding transportation. In 2023, the average monthly car payment eclipsed $700 for new vehicles and $500 for used vehicles. Yikes. This is a big issue recently since supply chain issues have made buying necessary but expensive.
So if you’re stuck in this boat, here are a few things you can do:
- Buy as little car as you can. If you’re going to finance a car, make sure it’s under the average stated above. Future you will be thankful.
- Make extra payments when you can. It might seem like too little, but given where Auto rates are, the quicker you pay down principal-the better. This is because interest is charged on your outstanding principal. If you pay that down, you are saving yourself the equivalent of the interest rate on the principal you paid off. If you pay off $100 worth of auto debt principal where the loan is 7%, you have saved yourself $7 a year, or seen a return of 7%.
- Stay on your family’s insurance or bundle with family. Every insurance company wants to grow its policy base and offers discounts to do so. Remember, the most expensive person to insure in a car is a male between the ages of 18-25. That also happens to be the military’s target recruit demographic.
- Get a gas credit card and buy gas from a member’s grocery store. The difference between Chevron and Costco gas might be only 10-20 cents, but the average American fills over 600 gallons a year. Military folks often drive much more (given my experience), and that small change can add up. Here are some awesome gas-only credit cards.
- There’s no such thing as bargain auto maintenance. Don’t sell yourself short by taking your car to the dealership or cheapest mechanic you can find. Pay for peace of mind, even if it means paying a premium. Good mechanics can charge more because they are saving their clients thousands of dollars later.
BUILDING CREDIT AND MANAGING DEBTS WHILE WORKING
Homeownership is a goal I uncovered during my surveying. Lucky for you, service members are entitled to home financing not available to other Americans in the form of a VA loan. If you are relying on those programs to ensure a good mortgage for you and your family, you are mistaken. You’ll have to do some work to actually build your credit first, to prove to the bank you will be able to pay – and this can be tough for military families.
Here are some tricks:
- Put your children and family members on your credit cards. Think about your family as one “credit unit.” Using and connecting your credit as a family can build it faster for all family members. For parents, if you choose to put kids on the credit card account without giving them a physical card (you can also get them one and set limits) they will still get “credit” for the spending you do and your good payment history. When they turn 18, they will have a credit history, which can help them immensely when eventually purchasing a car or home.
- Automate your expenses. You pay for recurring items every month – think Netflix, gym memberships, and car payments. Put these on a card and nothing else. Many people use multiple cards for different categories of expenses as a budget tool. This can become very hard to track. By automating your spending and budgeting through one credit card, you can track your set expenses each month. All the while, you are building credit. Consistent transactions on your card help build a consistent payment record – which is a large component of a high credit score.
- Take advantage of banking and credit benefits for service members. Many financial institutions waive fees on accounts and cards for you. My favorites are the Amex Platinum ($695 value and a great card for traveling families) and the Chase Premier Plus Checking – both of which are totally free for Active Duty and Reservists. There’s another hidden couple hundred bucks a year.
- Call your financial institution. It’s possible you will be in an area with limited service and no internet. Most financial service providers will offer telephone banking that you can dial into. You can pay bills, transfer money, and do all that good stuff via phone. Hint – if you are able to have all your banking/credit cards in one place you can make it extra easy on yourself.
NOT MAKING ENOUGH DURING EARLY YEARS OF SERVICE
We all know the struggles of being a public employee. Most employers are offering 401(k)s and not pensions anymore. For this reason, pension plans are frequently offered only by governments. You get the benefit of all that, but it comes at a steep price early in your career. Public sector workers make less than their private sector counterparts during their respective careers.
That’s okay – and here’s why:
- If you are in the military, you can Google what your salary is going to be. Do that here and budget and plan accordingly.
- You won’t have to save as much for retirement as your private sector friends. You will have a guaranteed income stream in the form of a military retirement paycheck, while others have to withdraw from their portfolios. You don’t have to contribute to retirement accounts as aggressively as others.
- In comparison to civilians, the tax code will possibly treat some of your income and expenses more favorably. The IRS actually publishes a specific tax guide for service members. Here is the link. Active service members should consider itemizing deductions. This article is too short for the whole available list, so read about them here. Couples should also almost always file jointly, especially if one is not working.
- You have much lower healthcare and childcare costs. If stationed on base, make sure you are taking advantage of what is provided there. If not, the stigma around finding help in your own community can be daunting. A good place to start would be a food bank. As someone who used to work for one, there is extra attention given to military spouses and children.
- You also have access to virtual resources tailored to military families. InDependent’s Fuel the Homefront program, for example, helps you maximize your food budget and your time spent planning, shopping for, and making meals.
Even so, the gap between military pay and civilian pay for comparable jobs makes many families feel like they are struggling. Though sometimes difficult, the standard advice – follow a budget, use automatic transfers to savings so you don’t “see” the money in your checking account, and start investing for retirement as early as possible – are still some of the best ways to secure your financial future.
WHAT HAPPENS TO MY FAMILY IF SOMETHING HAPPENS TO ME?
No one ever wants to have this conversation – so I’ll have it for you. I tell all my clients, regardless of age, that the best thing you can leave behind is a well planned, thought out will. This starts with making sure that your spouse, children, or other loved ones are beneficiaries or joint owners on ALL your accounts. It also means you should have a conversation with them that they are designated as such.
Here are some other military specific estate/will items to look out for:
- Don’t buy more life insurance, especially if you are younger. You’re already taking advantage of SGLI. Most normal insurance costs between 10-20 cents per $1,000 of coverage. SGLI costs 0.06 cents. It’s the cheapest life insurance money can buy, and it’s more than most people have in insurance already.
- All JAG (Judge Advocate General) Offices provide free service for wills and powers of attorney. If you are on a military installation, you can have all these documents taken care of for free. I would highly encourage financial POAs for spouses, as your other half may be away and unable to assist with financial matters. If you are away from the base or need more intricate estate planning, programs exist that provide other estate/will services free of charge for military households. Contact your State’s Bar association to see what legal services they have for service members. These often go beyond estate creation and into legal representation.
- Keep an open mind about opportunities to return to work and stay engaged with employment resources for military spouses. Maintaining a network that can help you find employment can make all the difference, whether you are moving to a new area, re-entering the workforce, or if the unthinkable happens with the death of your spouse. A large problem for surviving spouses and many military spouses (especially women) is having to reenter the workforce after years off. Having a re-entry plan or some level of ongoing professional training/development can be huge. Post-COVID, this is also easier than ever to do with busy schedules as virtual options and resources have expanded.
HEALTHCARE PLANNING FOR LATE-LIFE AND INJURY SCENARIOS
Another concern of the military families I spoke with was disability scenarios and longevity. This is the only situation where I will say meeting with a financial planner makes perfect sense if you aren’t sure of your longevity and want to make sure to take advantage of your early years of retirement.
As far as tips for this category go:
- Buy long-term care insurance early. Over 70% of Americans in the next few decades will need long term care. 40% of those will be under the age of 65. Like investing, it is critical you start paying premiums early. Do this while in the best health possible. Long-term care providers ARE allowed to discriminate on the basis of pre-existing health issues. The ideal age to start shopping is between 50 and 60, but you could start as early as 40 if you feel inclined.
- Have a disaster plan. This one isn’t financially related but can have huge financial impacts if not handled right. I am not an expert on disaster plans for families, but here is a good place to start. Keep this plan in the same folders and hard-copy locations as your wills and estate documents. It’s also a good idea to make a list of all financial accounts and important related documents in this place as well.
- Retire earlier. I am one of the few financial planners who will make this call. Service members work their whole lives at pay below that of the private sector. The result is that income comes back in retirement in the form of guaranteed pension payments. Retiring at 60 versus 65 can be much easier for veterans. Getting to retire earlier can do a whole lot for your longevity. You will avoid working into later years when health deteriorates and take advantage of enjoying earlier years of better health.
- Remember what the most important things you have spent your life protecting are. Whether faith, family, country, or something else fulfilled your career as a service member, keep it in mind. Too often, people enter retirement and feel bored at best, and lost without purpose at worst. Remain active in fulfilling these core values of yours. That is the most important thing I’ll say before we wrap up.
So there you have it, the five biggest sources of stress for my military clients and my recommendations to ease them. This isn’t a whole list by any means, and there are TONS of resources available for service members.
Next, I will say it is unlikely you will go through your professional and financial life without the help of advisors of some sort. When it comes to anything finance or money related, please make sure you are working with a fiduciary. A fiduciary is someone who is legally bound to act solely in your best interests. Examples of people who are fiduciaries are registered investment advisors, certified financial planners, and certified public accountants. Examples of people who aren’t fiduciaries include stockbrokers, insurance agents, and anyone else selling courses, hosting workshops, or giving out general “one-size fits all” advice.
Thank you for taking the time to learn more about financial issues faced by military families. Remember that, at the end of the day, no one is going to remember everything alone. Talk to your family, your loved ones, your friends, and your advisors. Financial knowledge is often hard to get because it’s scary to discuss it honestly. Let’s change that.
As always, thank you for your service.
Jarah is an Accredited Portfolio Management Advisor and the Founder of Macfarlane Investors LLC. He enjoys writing and is currently working on his second book, Why Companies Go Public. Other things Jarah enjoys are lifting weights, good coffee and cheering on the Seattle Mariners.