When you joined the military, you probably were looking forward to seeing new places and learning new skills. But you may not have anticipated new financial trials.
The first few years in the military can really strain your budget -- assuming you have one. A few wrong moves and you could find yourself in a financial hole that would be hard to escape.
"Most new recruits are young, don't have money to burn and have relatively little experience managing their own finances," says Glenda Oakley, a USAA employee and former Army platoon leader. Oakley has seen their financial challenges firsthand, both on base and throughout 15 months in Iraq. "I tried to help my soldiers understand that the decisions they make now will stay with them their entire lives."
Here are 10 money missteps that all new recruits and junior enlisted personnel should avoid.
1. Failing to Track Expenses.
First, figure out where your money is going.
Track your expenses for two months," says JJ Montanaro, a certified financial planner ™ with USAA. "The reality of where your money goes is at the heart of developing a spending plan. A lot of folks who have started the process this way have been shocked at the opportunities to cut back and cut out to find cash for paying off debts or building for the future."
While she was in the Army, Oakley says she set aside a reasonable amount of "play money" at the start of every month and used it to pay for nonessentials like entertainment or eating out. She had only one rule: "When it's gone, it's gone."
Another important financial decision concerns where you choose to live. Many junior enlisted personnel want the freedom of living off-post, but it can be much more expensive than the low-cost housing and amenities available on base.
2. Buying Too Much Car.
Springing for a slick new ride falls into the spending plan discussion, but is so common among new recruits that it deserves a separate mention. While buying a new economy car or a sensible used car may not impress your friends, it can help you stay on solid financial footing.
Reflecting on her own experiences, Oakley says she told soldiers in her platoon that they were not only getting a car, but also the loan and auto insurance that come with it. Those numbers can add up, she told them, so she urged them to shop around for competitive rates. As a platoon leader, she told young soldiers not to be afraid to ask a noncommissioned officer for advice. "They're there to help," she says.
3. Putting Off Retirement Savings.
For people just starting their careers, retirement seems like a lifetime away. But taking advantage of the military's Thrift Savings Plan from the beginning could make it easier to start a nest egg for later in life.
"Making it an automatic occurrence is critical," Montanaro says. "It becomes a first thing you do each paycheck, and not a last."
If you're deployed to a combat zone, don't overlook the Savings Deposit Program. This savings account, administered by the Defense Finance and Accounting Service, currently pays a 10% interest rate on up to $10,000 per deployment.
4. Blowing Your Bonus.
Enlistment bonuses and other special pay just scream to be spent on a bigger TV or a new tattoo. But chances are, you can think of a more responsible use of a good portion of that money. One of these days, you'll thank yourself for paying off debts or setting aside a rainy-day fund.
5. Spending Money You Don't Have.
The "I want it now" mind-set is even more dangerous when you don't have the cash to pay upfront. Putting big purchases on credit cards -- or worse, taking out a payday loan -- can come back to bite you in the form of high fees, interest charges and mounting debt.
Drawing from her personal experience, Oakley told soldiers in her platoon: "Credit cards shouldn't be used to spend what you don't have. If you do use them, pay them off quickly before the balance keeps growing."
6. Thinking Short Term.
Learn to separate a good deal from a dud by looking at the total costs involved. Rent-to-own-furniture stores or promises of "no payments until 2015" might tempt you with low initial costs, but they can nickel-and-dime your budget to death if you don't adhere to strict payment policies. As with any major purchase, if a deal seems too good to be true, it probably is.
7. Not Protecting Your Property.
Even if you don't own a home, you likely have possessions worth thousands of dollars, especially if you live off-post in an apartment.
"Your landlord has coverage. Make sure you do, too," Montanaro says. "Many landlords have coverage that covers their property; with a renters policy you can insure yours."
8. Ignoring Your Credit Report.
Once a year, take advantage of your right to get a free credit report at annualcreditreport.com from each of the three major reporting agencies. Your report details your history of borrowing money and making payments on time.
Correcting any errors on your report could save you money by helping you qualify for lower interest rates on loans or get approved for affordable housing. If you've had a troubled history of managing debt, now's the time to change your ways and help improve your credit.
9. Opting Out of Life Insurance.
As a military member, you're automatically enrolled in Servicemembers Group Life Insurance, unless you opt out. For young members without a family to support, saving a few bucks a month by forgoing life insurance might seem like a good idea. But Montanaro says to think carefully before taking that route.
"No matter your age or marital status, you may have financial obligations that life insurance would ensure you meet," he says. "Purchasing life insurance while you're young and healthy also ensures that you'll have some coverage even if your health situation were to deteriorate."
10. Jumping Without a Parachute.
Unpleasant surprises can drain your bank account -- or worse. A broken washing machine or a medical emergency could set you back hundreds or thousands of dollars. If you have no choice but to pay with credit cards, the expense could haunt you for years. It's better to plan for these setbacks in advance by setting aside a financial cushion. Contributing a small amount to your emergency fund every month can take some of the tension out of trouble.
Living on a modest income, it's understandably hard to put aside funds for savings, insurance and debt reduction. But making sacrifices now is almost always better than paying the price later.
"These are all fundamental components of building a solid financial foundation," Montanaro says. "While they may seem to make up an overwhelming to-do list, the fundamental first step is to build a lifestyle in which you spend less than you earn and consistently save for the future."