By Rebecca Perron
Military Newspapers of Virginia

And as you prepare to leave the military and enter an uncertain job market, financial planning may be more important now than ever. Whatever steps are being taken to improve the economic conditions, many Americans still face the threat of job losses, personal financial setbacks and the related hardships. Many companies are continuing to lay off workers and reduce bonuses and overtime pay.

Regardless of whether you will be receiving retirement pay, a separation check or perhaps your savings or spouse’s paycheck will cover the bills, it’s probably wise to play economic defense. Preparing for a new financial life after the military usually requires a strengthening of finances as a safeguard against potential hard times despite the current economic conditions.

But where do you begin? This can depend on what financial planning has been done in the past and how serious the issues will be once that last day on active duty has come and gone. One step that you should take now is to assess your future income and expenses.

Track your income and expenses, then trim to fit

Bringing your expenses in line with your income may require some tough decisions. To get the most accurate estimate of average monthly expenses, you need to look at three-to-six months of spending. This will help estimate bills or special expenses that are paid infrequently. You should examine checkbook entries, bills and sales receipts, as well as the few dollars of cash spent here and there at the vending machine. Every nickel and dime is important.

You can add up and track expenses in one of several ways. You can get out paper, pencil and a calculator, you can use home-finance software or you can find a Web-based calculator to record each expense. Software programs make it easy to produce reports and to group your expenses in categories.

Once you know exactly where you’re money is going, you can figure out which expenditures you can and must cut.

Build up liquidity

Typical advice includes setting up a rainy-day fund that would cover three-to-six months of living expenses, which is a lot easier to do before leaving active duty and you are still receiving a full paycheck. This reserve should be in easily accessible assets such as a money-market mutual fund or a money-market savings account at a bank. If saving money is not possible, then other options would be to sell physical assets or stocks to raise cash or temporarily stop making contributions to a 401(k).

Ease your debt burden

Reducing debt is much easier to do while your income is still coming in and definitely a reason to begin before leaving active duty. The most direct way to accomplish this is to pay off credit cards and other consumer debt. If you have more than one creditor, experts suggest first paying off the debt with the smallest balance. Then, once that balance is paid off, apply those monthly payments to the loan or credit card with the next smallest balance. Another method is to go after the debt with the highest interest rate first. Then roll the monthly payments from that debt to the debt with the next highest interest rate.

Either method requires discipline and careful planning to set aside the extra monthly amounts, but can work well if you stick with it. But be careful not to put so much into debt relief that you have too little in your rainy-day fund.

Sometimes it can make sense to consolidate debts to get a lower interest rate. But be careful with credit cards that have low “teaser” rates and may leave you with much higher interest rates in six months. And if you’re borrowing isn’t under control, the attempt at debt restructuring may have made things worse.

Resources

Sitting down with a financial counselor can also help prepare you for the road ahead. Financial counseling is available through any Hampton Roads Fleet and Family Support Center (FFSC), Army Community Service Center or Airman and Family Readiness Center. The basics of retirement and separation financial planning are also covered during the Transition Assistance Program offered by each service. FFSCs also offer a single-session, interactive workshop that introduces the basic concepts of financial planning, including the military retirement system and the Thrift Savings Plan.

“We talk about different financial situations and provide the education to help make sure their finances are in order,” explained Will Watkins, a financial educator at Naval Station Norfolk’s FFSC. “We are not trying to tell people how to invest or spend their money, but rather to educate them on things that are out there.

“One of the first things we discuss is what their financial responsibilities are,” Watkins continued. “We make sure they have a budget, understand what is coming in and going out, and what some of the implications can be is they don’t take care of their obligations.”

Another point to consider is what you will be worth to civilian employers.

“I give them a good understanding of what they can make in the civilian community,” Watkins said, “and get them to start thinking about the things they have been getting for free, like medical and dental benefits. Those are things to take into consideration because now they will have to start paying for them. We have a website they can refer to help them determine those extra costs.”

This concept is a little different for retirees, because they will receive retirement pay and access to some benefits.

“But retirees need to understand how getting a portion of their pay and only once a month will affect them,” Watkins said, “and to understand the state taxes that must be paid if they haven’t previously been required to pay state taxes.”

Watkins also speaks about planning for retirement through investments in TSP, 401k’s or Individual Retirement Accounts.

“Generally people who are transitioning out don’t think of it then, but it’s important to start planning early,” Watkins explained. “If they don’t make that part of their plan, to find out if their next employer has a retirement plan, or do they need to set one up themselves, they can find they will get to retirement age and not be prepared to stop working when they want to.”

The bottom line for Watkins is that all separating or retiring service members should take such financial planning into consideration at some point, and the earlier they start planning for retirement, the more prepared they will be for their future endeavors.