Transitioning from the armed forces into civilian life can be challenging at times. One of the best ways to help your transition is to take the right financial steps immediately after leaving the military to gain financial peace of mind.
In this article, you will be introduced to five smart financial steps to take after leaving the military so that you can ensure a bright financial future for yourself and your family.
Create a household budget
If you and your partner have not yet created a detailed household budget, the time to do so is now. Creating a detailed budget of all your monthly expenses helps you to identify areas where you are overspending and gives you the financial piece of mind that you know you can cover all your living costs.
It is important to note that it is easy to forget smaller expenses in your budget. So make sure you cover everything you spend money on each month, including junk food, household supplies, birthday gifts for friends and family members and spontaneous weekend getaways.
Set up an emergency fund
Once you and your partner have agreed on a monthly budget make sure you start saving for an emergency fund. The right size of an emergency fund is a much-debated topic among personal finance experts, but the consensus agreement is that a minimum of $500 is a must. This will cover unexpected trips to the hospital, car repairs or home repairs that come up more often than one might think.
Start paying off debt immediately
Once you have set up a budget and are saving towards an emergency fund, it is vital to start paying off any debts you have as soon as possible. The longer you wait with paying off your debts, the more interest costs will be. Hence, it is wise to tackle your debt repayments immediately.
The two smartest ways to going about paying off your debts is either by paying off your highest interest bearing debts first or by consolidating all your debts into one monthly repayment using a consolidation loan.
If you credit score allows it, then a debt consolidation loan is in most cases the wisest option as it allows you to focus on covering only one monthly repayment as opposed to making several repayments on different outstanding loans. However, if your credit score is too low for a debt consolidation loan then start with paying off your highest interest bearing debts first.
Only purchase a home you can afford
It is also important to note that there are specialized mortgages for veterans that anyone who has left the armed forces can take advantage of. Specialized mortgages for veterans tend to offer more favorable terms and conditions to enable ex-military personnel access to homeownership. However, despite the access to beneficial mortgages due to your ex-armed forces status you should only ever purchase a home that you and your partner can afford to pay for.
Choose the location wisely and ensure that you are able to make your mortgage payments even if you or your spouse should be faced with unemployment for a period of time.
Choose the right retirement planning option
Most U.S. military personnel have their savings in a Thrift Savings Plan. The Thrift Saving Plan is a defined contribution retirement plan, similar to a 401(k), for members of the civil service and the armed forces. It is a tax-advantaged way to save for retirement.
However, once you leave the armed forces you have three options of how you want to plan for retirement. You can:
- Leave your savings in your Thrift Savings Plan
- Roll your plan over into an IRA
- Roll over your plan into your new employer’s retirement plan
While your Thrift Savings Plan offers you tax advantages, it offers limited investment options. Hence, rolling your retirement plan over into an IRA or your new employer’s plan will be the more flexible and, therefore, smarter retirement planning option.