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Pay off your debts first
According to a recent survey by nonprofit credit counseling service American Consumer Credit Counseling, 27 percent of military service members had more than $10,000 in compared with 16 percent of civilians. It is a long and touted principle in investing that paying off your debts first is paramount in any financial plan, but it is even more important for members of the military. A report by Military.com states that more than one-third of military families struggle to pay the bills each month and that 20 percent also ended up borrowing money outside of banks just to make ends meet. This means family members, friends, etc. The constantly shifting schedule and frequent location changes for military families only compounds the issue. The unemployment rate among military spouses jumped to a whopping 38 percent during the pandemic and has hovered around 25 percent for the last decade, as moving around from post to post makes it difficult for many military spouses to maintain one job. This can also make accumulating debt easy, and paying it off harder, but it’s crucial to stay vigilant against mounting debt obligations. Getting a proper repayment plan in place can help. Check your and assess where you are and how much needs to be repaid. From there, start a realistic and if you can, put aside 10-20 percent of your income each month for debt repayment. Call your debtors and see if a compromise can be made in the amount you owe or number of payments. Invest in education
Education is one of the best investments anyone can make, and the military specifically has wonderful benefits for those who choose to pursue higher education. One such avenue is through the Defense Activity for Non-Traditional Education Support, or DANTES. The program allows military members to take College Level Examination Program (CLEP) tests, DANTES Subject Standardized Tests and Excelsior College Exam Tests for free. These tests give Credit-by-Exam, meaning you gain college credit by taking an exam to show you understand the knowledge. These exams and their credits are accepted at 2,900 colleges throughout the country. Military members can take enough of these tests to earn an Associate’s degree for free, and do so without ever stepping into the classroom. Further, military members can use the American Council on Education’s recommendation to claim actual academic credit for military experience and training, depending on the program. From there, programs like the Armed Forces Tuition Assistance Program are available to eligible members of the armed forces with the ability for students to receive up to $4,500 a year for 100 percent of tuition expenses. If you’re saving for your children, consider a 529 plan. is an investment account that allows contributions to grow tax-deferred, and later withdrawn tax-free if used for qualifying educational purposes. A 529 plan is available to just about anyone. In order to sign up, you will need to access your state’s specific 529 plan site, as each state distributes the plan under its own guidance. You can sign up for plans in other states than your own, but make sure to pay attention to each state’s tax guidance, especially if your post might keep you moving around. The Federal Thrift Savings Plan
The , or TSP, is similar to a 401(k), but only offered to federal employees, making members of the uniformed services eligible. Federal employees are automatically enrolled in the TSP at 5 percent, meaning 5 percent is automatically deducted from each paycheck towards a TSP contribution. Some agencies will match TSP contributions, and others will not. This amount can be changed, but 1 percent is the minimum allowable contribution. Like a 401(k), contributions to a TSP can be made on either a traditional or Roth basis. In a traditional TSP, money is taken out pre-tax (lowering your taxable income), your contributions grow tax-deferred, and is taxed once you begin taking distributions. In a Roth TSP, money comes out post-tax (meaning that you’ve paid taxes on it), grows tax-free, and is then taken out tax-free during retirement. Contributions to TSP accounts are also allowed for uniformed services members while they are earning tax-exempt combat pay. These contributions will not be taxed, but earnings can be taxed when they are withdrawn. If the contributions are to be designated as Roth contributions, they will be tax-free during distribution if the usual qualifications are met. The 2022 TSP elective deferral limit is $20,500. There is also a catch-up contribution limit of $6,500 for participants turning age 50 or older in 2022. This catch-up provision is above and beyond the regular contribution limit. Savings accounts
Individual savings accounts are a critical part of any financial plan. Putting money aside, especially for military families who might change environments from one month to the next is particularly important. Banks are especially amenable to the ever-changing needs of service members, and it’s important to let your bank know if you are an active-duty servicemember. The Servicemembers Civil Relief Act provides several protections for active-duty military, and taking advantage of them can be crucial in your financial plan. Members of the military also have exclusive access to banking institutions and credit unions like and . These banks tend to offer exclusive perks to members that are not usually offered at other banks. For example, Navy Federal charges only 1 percent for foreign transaction fees. Military banks also offer in many cases free checking and high-yield savings accounts as options to their customers. Military banks often also have shared network ATMs and branches, meaning that even if you bounce around a lot, you’ll still have regular banking access. are also a great option for members of the military. These savings accounts offer a higher rate than regular savings accounts, and are a good place to park cash while earning a little bit of interest. Another great savings option for military members is a Savings Deposit Plan. SDP accounts are offered through the Department of Defense and provide members of the uniformed services serving in designated combat zones the opportunity to increase their financial savings. Those who qualify can deposit up to $10,000 and earn 10 percent on an annual basis. To put that into perspective, civilians rarely have the option to earn over 1 or maybe 2 percent with similar cash savings. Members must be receiving Hostile Fire Pay and be deployed for at least 30 consecutive days in the combat zone, or 1 in each of 3 consecutive months in order to be eligible. Money can only be withdrawn once they have left the combat zone. U S savings bonds
Savings bonds are some of the safest investments around as they are backed by full faith and credit of the U.S. government. They can be purchased for as low as $25, and the interest on a savings bond is subject to federal income tax, but not state or local income taxes. Savings bonds may be purchased directly from the Department of the Treasury, at your local bank or credit union, and can even be offered through payroll deductions. Savings bonds can be a great resource for military families because it is a safe way to park money for an extended period of time without having to worry about it. Further, only the person or persons who have registered a savings bond can actually receive payment for it, adding an extra layer of security. Interest earned is usually low – Series EE bonds are currently 0.1 percent through October 2022 – but there are others, like available for purchase, which yield a 9.62 percent composite rate through October 2022. IRAs
Military service members can invest in (IRAs) just like anyone else, and they are ideal supplements to the military TSP or pension. Once those plans have been maxed out, you may want to consider putting extra money aside into one of these retirement-focused accounts. The contribution limit for any IRA in 2022 is $6,000, and investors have a choice between two different types: : Money goes in pre-tax (lowering your taxable income), grows tax-deferred, and is then taxed on the back end once distributions begin. Common investments in an IRA include and . : Money goes in post-tax (meaning you’ve paid taxes on it already), grows tax-free, and qualified withdrawals are then taken out tax-free. Real estate
For military families, can be a great way to secure a place to live while building equity — even if it needs to be sold quickly due to changing posts. Once you have paid off your debts and secured a substantial nest egg of at least several months of living expenses for you and your family, investing in a home that is yours could be a smart move. Military members should be aware of the benefits afforded by . VA loans are provided by the U.S. Department of Veterans Affairs, and are offered through banks and mortgage companies. The VA guarantees a portion of the loan, allowing the lender to then provide the military member with more favorable terms. No down payment is required, there are limited closing costs, there is no need for private mortgage insurance, and members enjoy competitively-low interest rates. There is no other comparable plan out there that allows for so many benefits for first-time homebuyers. If military members use the program for their first home, they can then use that same home and equity to sell and buy their next home depending on their changing posts and needs. This also helps build the path to wealth while enjoying advantaged benefits not offered to civilians. Bottom line
Military members have a unique opportunity to take advantage of investments and savings that civilians do not have access to, but these plans often require more research to make the most of. Although not as universal as other investments, opportunities like the TSP, SDP and VA loans allow for flexibility and serve as a strong foundation for military members to build their finances. Military families often face unique hardships, especially if one spouse is not able to work due to constantly changing military schedules. By taking advantage of the special opportunities afforded through some of these programs and staying on top of debt, military families can build a solid path to financial success. Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation. SHARE: Bankrate reporter Georgina Tzanetos covers investing and retirement. Brian Beers is the managing editor for the Wealth team at Bankrate. He oversees editorial coverage of banking, investing, the economy and all things money. Related Articles