Military finances are not as free-flowing as you thought. It is true that the government allots a huge portion of the national budget to the military.
The budget translates to a lot of benefits to the members of the military. From student loan repayment aids to veteran financial aid, our men in uniform should be living the good life, right?
Not really. For all those who are not a member of the military family, you will get a lot of misconceptions about their true financial position. It is best to know what these are so you can budget your finances properly.
Misconceptions about military finances
Military pay is stable and guaranteed
The truth is the paycheck will always arrive. However, the amount will not always be correct. Sometimes, you will be overpaid. But there are a lot of times when you will be underpaid. This is usually because of inaccurate entries caused by the constant relocation that is part of your job. Promotions, salary increases, and other details may get lost in all the confusion. This means your pay will not always be accurate. It is your responsibility to make sure all changes in your pay will be accurately reported so your monthly pay will be correct.
Loans from on-base banks have affordable payments
Although your loan is approved, it does not always mean the payments will be affordable. If you accept too many loans, the monthly payments will stack up and end up being too much for you to pay. You still have to do your calculations before you apply for another loan. Make sure you can afford all the monthly payments so you will not end up increasing your debt-to-income ratio.
Active duty soldiers are not qualified for the WIC Program
The Women, Infants, and Children Program provides a lot of benefits that include food, nutrition education, etc. You can get food coupons that will enable your family to afford good food. It is a common misconception that active duty soldiers do not qualify. That is not entirely true. You need to find out if you qualify because this will help your family eat healthier.
Relocations are covered by the military
A PCS or Permanent Change of Station is part of the job, but it is not completely covered by the military. Not only that, you usually have to spend things first and then have it reimbursed. Make sure you track your moving expenses and try to keep your moving costs low. Know the amount that can be reimbursed and try not to go beyond it. Since the job requires you to move a lot, try to save up for a moving fund so you will not rely on credit to spend for your relocation expenses.
Moving damages are reimbursed
While it can be reimbursed, you need to provide solid evidence that the furniture or any of your possession were damaged while in transit. Without it, your request for reimbursement will not be honored.
Military exchange cards cannot be considered as credit cards
The truth is, they are. Although they are operated and funded by the AAFES (Army and Air Force Exchange Service), you should treat it like an ordinary credit card. It has a credit limit and the balance that you carry over to the next month will incur charges. You need to pay this and know that any financial transaction or activity will be reported. This is debt to the government – something that you can never run away from.
Moving overseas will incur the same expense as a PCS move
Relocating overseas will definitely be more costly and the military will not always reimburse everything. If you know that there is a possibility that you will be relocated overseas, give your moving fund a boost. In case your possessions are stuck in transit, you might be forced to live without them for a while. It will be hard and the military will not always cover the expenses related to your move.
Starting a TSP is not necessary if you will only go through one enlistment
Regardless of the length of your service, you should take advantage of the Thrift Savings Plan. While you are training, this is actually the best time to start your TSP contributions. Keep on contributing until you leave the service. Even with just 4 years worth of contributions, your earnings will keep on growing until you retire.
Automating your TSP payments is all you need to do
Your efforts to save for retirement will not end with automating your payments. Make sure your contributions are invested properly and that you are within the limits of your risk tolerance. Be proactive in your retirement contributions so you can maximize the returns on your investment. There are 5 TSP funds and an automatic payment will go to the fund that has the lowest risk – and lowest return. If you want to increase your returns, you have to specify where you want your automatic payment to go. That means you may have to constantly check what funds are performing well.
Saving for a college plan is more important than retirement
While your intent to put your children’s welfare first is admirable, it is not always for the best. Make sure you do not put your retirement investments in the backseat. Besides, there are so many education programs and financial aids that you can tap into to help your children pay for college. Your retirement, on the other hand, is not as lucky. So it is best to prioritize it.
Credit scores are influenced by your income
The rules are the same with civilian jobs. Your credit report will not involve income. It will only reflect your credit transactions. So if you think that your salary can help you get a high credit score, think again. Improve your credit use and that will help you get a more favorable credit history.
Military retirement funds translate to IRA contribution income
The income from the pension that you get from the military will not meet the IRA’s definition of a salary. Do not contribute to the IRA based on your military retirement.
Not using debt means you have a high credit score
On the contrary, not using debt will give you a low credit score. Remember that your credit report will show credit transactions. If you do not use credit, there will be no transaction or activity to report. If there is nothing in your report, then your credit score will have no basis and that will translate to a low score.
Safe investments is always smart
A low-risk investment may help protect you from losses but it will not help you earn a lot either. A safe investment is not always a good idea if you want to maximize your investment returns. Diversify your portfolio and invest in both high and low-risk investments. That should give you some balance.
Having a will could keep you from probate
A probate is the legal process that will put your will in court so it can be justified as a true and valid public document. If the will is to be implemented, then a probate will always be necessary. There is no way to avoid it.