Military life is unique and it comes with some equally unique financial pitfalls for military couples. No matter whether you’re a newbie or a seasoned hand, anyone can fall prey to these money pitfalls.
Buying a New Car after a Deployment
I can still hear the sergeant major addressing my husband’s unit before they were dismissed from formation the first weekend after he got back from deployment. He warned the soldiers not to do anything rash, but few people listened. On Monday morning, the sergeant major’s first comment was “Why does this parking lot look like a new car lot?”
A few months later, my husband fielded a call from a creditor. He was looking for someone in the unit who had purchased a new Infiniti in those giddy post-deployment days and was now behind on car payments.
The absolute worst time to take on new debt is right after a deployment. Despite our best intentions, we become used to all the extra money (hardship, separation, not to mention the income tax break). It takes a few months for our LES to “settle down” and look normal again and it can be a rude wake-up call when it does. Lenders know that service members are a fairly safe credit risk– they have a relatively stable job, a commanding officer can be contacted and pay can be garnished to meet a debt. So unsuspecting service members can be easy prey for predatory lenders.
Bottom line: Wait until your pay situation has stabilized post-deployment before making a major financial decision.
Not Saving for Retirement
It’s hard to think about saving for the future when you are having trouble making ends meet in the here and now. Service members sometimes think they don’t need to worry about retirement because they will have a military pension. The truth is, only about 17% of military stay in long enough to collect retirement. And with a drawdown looming, putting in 20 years may not even be an option.
The textbook answer is that it doesn’t make sense to save if you are carrying debts with a high interest rate, such as credit card debt or signature loans. But the reality is that some people get “savings paralysis.” They are waiting until they have paid off every single debt before they feel comfortable enough to set aside money for savings. While it is true that you should never miss a payment (there can be credit score and security clearance consequences), you should always have something in your savings account. If you don’t save anything, even in your lean years, you are missing out on valuable time when your investment could grow thanks to compound interest and dollar cost averaging.
Bottom line: Prioritize your debts by interest rate, make sure you are making your minimum payments, but always put aside some money for savings, even if it’s only $25 per pay period. You’ll be happy you did.
Buying a House (When You Might Only Be at a Duty Station for a Year or Two)
This is one that I am guilty of myself. The housing market at our last duty station was such where it cost more to rent than to buy. In order to secure housing in our desired neighborhood, we ended up buying much more house than we originally intended. Fast forward to last year, when we PCSed. The market tanked, we could not afford to sell our house, and here we are, the most reluctant landlords on the planet, trying to manage property from 4,000 miles away.
Bottom line: Do the math. Even if renting is a bit higher than what a mortgage payment will be, there are many other costs involved in home ownership. Unless you are planning on retiring to that area and/or living in the house for more than 3 years, it probably does not make sense to buy a house.
Not Using All Your Military Benefits
Even in these more austere economic conditions, there are a ton of benefits that come along with military service. Everything from tuition assistance and the ability to sign over GI Bill benefits to spouses and children to free tax preparation and free annual passes to America’s national parks and federal recreation lands. The Servicemember’s Civil Relief Act (SCRA) can get you lower interest rates on loans, help you terminate leases and protect you from eviction.
Bottom line: Make sure you are familiar with all your military benefits. Not taking advantage of them is like leaving money on the table.
Not Insuring Yourself Properly
Insurance just sounds boring and it can even seem like a waste of money. But I assure you, if you are not properly insured, it will come back to bite you at some point (let’s just say a second floor toilet may or may not have overflowed at our house). Most service members carry auto insurance, but many do not carry renters insurance assuming, wrongly, that if they live in military housing the government will cover anything that happens to their stuff. And if that expensive MacBook Air gets stolen out of your car, it will be your homeowners’ or renters’ policy that covers it, not your auto insurance.
Young couples also need to make sure they are adequately covered as far as life insurance goes. While service members are automatically insured for $400,000 under the Servicemember’s Group Life Insurance program (SGLI), Family SGLI for spouses is only $100,000 and this may not be enough.
On the other hand, a very young active duty military person without dependents might not need the full $400,000 of life insurance and might be better served getting a lower amount and putting the rest of the premium into retirement or emergency savings.
Bottom line: Assess your insurance needs periodically. Everyone should have renters insurance and it usually costs less than $20 a month. Oh, and make sure you periodically check to see that you have the proper beneficiaries designated for your life insurance policy.