Military Finance Report

Sunday, July 20, 2014

The Four Letter Word Killing Your Finances...Fees


In 2013, banks charged over $30 billion dollars in overdraft fees and were caught posting the highest charges first, to expedite the overdraft situation.[1] While overdraft fees can be controlled by closely monitoring the balance in your bank, what about other fees? Every January and July you should go through your financial statements and see if you’re being charged any fees you might not know about. Eliminating fees and maximizing rewards, where you can, should be a semi-annual task for your finances. Here are some common fees to look for.

  • Overdraft fees – Overdraft fees are the worst. You inherently don’t have money and then you have to pay even more money if you were to find yourself in that situation. The fees can be over $30 regardless of the amount overdrawn. Imagine if it were an interest rate. You could have to pay $30 for a $3 charge leaving you with an instant 1000% interest rate. The best way to avoid these fees is to monitor your bank account daily or weekly. You don’t have to balance to the penny, but checking your online account daily can be very helpful to make sure you don’t overdraw your account.
  • Minimum balance fees – Ever since the financial crisis of 2008, these fees have become rare. But a lot of times people won’t read the fee breakdown or the bank simply won’t make it easy to find the fees. Reviewing your statements monthly can help you identify the fees. If your bank is currently charging you those minimum balance fees, then change banks immediately. Most banks no longer charge those types of fees, so finding a new one shouldn’t be a problem.
  • ATM fees –USAA doesn’t charge a bank fee for using other ATMs and will refund you up to $15 a month in ATM fees (USAA serves military members and their dependents). A lot of people may be getting double charged and may not know it. If you use a non-bank ATM, the ATM may be charging you a fee and then your bank may be charging you a fee also. Some people can be losing $4-$7 each time they take out $20. This will quietly, yet quickly, drain your account and you may find yourself with overdraft or minimum balance fees because you weren’t tracking the ATM fees. To avoid these fees, find banks that don’t charge these fees or try to utilize your bank as much as possible to avoid the fees.
  • Statement fees – In an effort to do the right thing and “go green” many banks will charge upwards of $3 to send out paper statements. It’s marketed as a positive initiative, but I assure you, it is a money-making scheme. You may have to go paperless with your bank to avoid these fees.
  • Annual fees – These are common with credit card companies. Some credit cards offer fantastic rewards while charging an annual fee. You’ll have to do the math to determine if you’re making a profit with the rewards after the annual fee. If not, then switch credit cards to avoid those annual fees. That being said, I pay more in annual fees because I have the Air Force Club card which donates money to the Morale, Welfare and Recreation Fund. Also, when I first joined the Air Force, it was considered a professional courtesy for NCOs and Officers to be club members. But generally speaking, you should try and find a credit card without an annual fee.

There are many types of fees you should avoid. A quick search through your financial statements can help you identify these fees and then eliminate them. I helped one Airman (E2) recapture $25 a month by reducing all the fees. This was several years before the 2008 financial crisis, so hopefully everyone saw a decrease in the fees they were paying.



[1] http://www.forbes.com/sites/greatspeculations/2014/05/29/banks-hike-overdraft-fees-after-regulatory-clampdown-hits-revenues/

Thursday, July 10, 2014

Started from The Bottom, Now We’re Here…

Time is the most valuable commodity in our life. For your financial success, starting early is the best decision you can make. Regardless of your age, it’s always a good time to start planning for financial success. For those young 17/18 year olds just entering the military, the future is limitless. Here are some quick steps to start right now (complete in order listed).
·         Establish an emergency savings account. $1K-10K depending on how much bills you have (no more than 6 months’ worth of bills saved)
·         Reduce/eliminate debt. Reducing or eliminating debt is the bed rock of financial success.
·         Max out available tax-sheltered investments. Start an IRA and max it out. If you have additional funds, consider starting your Thrift Savings Plan (TSP). I usually don’t recommend saving all your money in retirement savings because you should have short- and medium-term goals you will need to save for.
·         After the IRA is maxed out, then start saving more in a taxable accounts or max out your TSP. Start investing in everything after you have an emergency savings account established, your debt is reduced/eliminated, and you’ve started saving for retirement. Buy stocks, mutual funds, gold and houses.
I enlisted in the military at 17 with no prior financial knowledge, absolutely no money and only two or three pairs of clothes. In the beginning, there weren’t as many resources available for me to learn from and I paid a lot of fees. But the banking industry has changed and information is available 24/7 and fees have been significantly reduced. After 15 years in the military, and following the steps above, I now have zero debt and have a significant amount of money saved up. I started from the bottom and now I’m here. At my 10-year mark, I crossed over to the “dark side” and became an officer. I hope to retire when I’m 40-years old. I’m not going to lie and say it was easy, but it’s worth it. It’s hard to see your friends spending all their money right away and having nice clothes, nice cars and a big house. But time can be just as cruel and it can be rewarding and after 15 years, I’ve seen time catch up to the big spenders and take everything away.
While blogging, I’ve met a junior enlisted, military-finance blogger, who’s well on his way to becoming financially secure. His investing style is focused on dividends. At the end of his military career and all the reinvested dividends, he will have no problems in the retirement years. Like his blog title states, he’s starting from bottom and he’ll soon be here. Go check out his blog and watch his net worth sky rocket: www.startingfromzeroblog.com/
There’s no reason you can’t do the same. Start today!

Wednesday, June 25, 2014

Military Spouses At-Home Business Success Stories

I’ve recently discovered that our military spouses are finding success and wealth with in-home businesses. Being stationed in Germany for four years, where jobs for our spouses are typically hard to come by, I noticed the direct-sell companies like “Pampered Chef” and “Stampin’ Up” were prevalent. Success often brought huge discounts and free products within the company. I’ve also noticed more military spouses are finding success in Multi-Level Marketing businesses too. Even more recently, I’ve noticed military spouses involved in photography, graphic design and craft businesses.

Companies like “Pampered Chef” are considered direct-sell companies. The companies, and the spouses who work for them, focus on selling the products first and foremost. The workers will host cooking shows to showcase the products. As a military husband, I was pleased to be the benefactor for some of these shows with all the leftover food. As a secondary money-making venture, you can invite friends to become Pampered Chef consultants and earn money from recruiting. I personally know a spouse of an E-5 who is now known as an Advanced Director. We haven’t talked about annual income, but according to the Pampered Chef compensation plan, she could be making anywhere between $10K and $80K a year. (http://new.pamperedchef.com/make-money#)

Companies like “*Wake Up Now” are considered Multi-Level Marketing companies. These companies focus on recruiting people to become Independent Business Owners (IBO) first and foremost while a secondary emphasis is placed on their proprietary products. They require monthly subscription costs from each IBO and then your upline makes money, but the company ultimately makes the money on these subscription costs. Now, while they’re literally pyramid schemes, many spouses have done well and are making a lot of money with them. A military spouse I know is making $1K a month passively after recruiting several people under him (military spouses can be males too). (https://hub.wakeupnow.com/resources/cmsHubResources/286.compensation_guide.pdf) 

Small businesses like photography, graphic design and crafting are great. There are usually no start-up costs and the owner is in full control. Facebook, Pinterest and Instagram are great ways to advertise and there are low barriers of entry, unless there are many spouses in your circle operating the same type of business.
The downside to these businesses, and can also be found with any small business, is when you’re starting out you usually depend on your immediate friends and family to support you. As one of my friends eloquently put it, it then becomes a Friend-2-Friend or Family-2-Family business and you’ll quickly notice that no one will want to talk to you anymore. If the business doesn’t start well, you’ll become desperate as the monthly costs go up and you’re not earning the income you’d hoped you would. Most at-home businesses fail because people jump in too quickly and have unreasonable expectations. For every one success story there are three failures with some spouses having hundreds of dollars of unused product they have to ship every PCS, reminding them of their failure.
Regardless, our military careers often uproot our military spouses and sometimes bring them to places where job opportunities are hard to find.

A lot of spouses have found wealth and success in starting at-home businesses. Do you have any success stories from your at-home business? Are you currently an MLM operator or want to use my blog to advertise? E-mail me at bjone6@gmail.com and we can discuss advertising space.

Here are some interesting Military Spouse success stories:
Spouse hosts “Trunk Shows” for artists:
http://www.military.com/spouse/career-advancement/military-spouse-jobs/spouse-owns-successful-home-based-business.html

A Spouse’s Article on Forbes about MLM success:
http://www.forbes.com/sites/chicceo/2012/09/27/is-mlm-a-bad-word/

A Military Spouse’s Success Story about Rodan + Fields:
http://www.militaryspouse.com/articles/money-maker/

*FULL DISCLOSURE: I’ve been researching and contemplating running a Wake Up Now MLM.

Sunday, June 8, 2014

The Power of Referrals

Being in the military means dealing with change. Frequent moving around involves frequently opening up new accounts with banks, service providers and utility companies. But do you know there is a way to cash in on all this?

Several companies often offer referrals to benefit the existing customer and the new customer. If everyone in the military started taking more advantage of these referrals, then we could really start making some money off our frequent moves.

In 2014, my family and I moved to Barksdale AFB, Louisiana. We bought a house and established our utilities by using the ones recommended to us by friends. But if the Housing Office or some private organization on every installation had a running list of referrals, then once you inprocessed, you could choose your service providers and then you would be provided a "referrer's" name to use, so both people make money. This list would be even more beneficial to those coming back from an overseas assignment since they would have to establish all new accounts versus transferring like CONUS-to-CONUS moves.

Here are two examples of what I'm talking about. But review the services you currently use and then look up the potential referral money you can pursue.

Dish Network: My family loves Dish Network. If someone refers a friend to Dish Network, they both get $50 off their next bill.

Internet Service Providers: Our local area uses Sudden Link for cable modem service (faster/cheaper than the DSL offered here). Their refer a friend gives $25 to both the referrer and the one being referred (is that considered a referee?).

Referral programs are important outside of frequent military moves too. Most banks and brokerage companies offer referral programs too. Here is an example from one of the banks I use:

Capital One 360: This is a separate bank I use solely for my emergency savings account. This bank, formerly known as ING Direct, pays both people $20 if customers open a bank account with $250 or more. If you are interested in this bank while reading this post, use this link to set an account with $250 or more: https://r.capitalone360.com/V1AVDPYTUb

I'm going to see if one of the private organizations I regularly participate in would allow me to establish this program. A new member to a unit could simply choose the service providers they would like to use, contact me, and I could provide a name, on a first in/first out basis, and both would benefit.

Friday, May 2, 2014

End of the Fiscal Year Discussion

Have you ever wondered why at the end of the fiscal year (30 Sep) it seems like your organization purchases items they don’t need? Have you ever wondered why money isn’t available during the fiscal year for mission essential items but then there is plenty at the end of the fiscal year? These things happen because 1) the constitution sets limits on when funds (appropriations) are available and 2) the political environment and economic situation is so messed up causing delays in normal budget processes.  Regardless of your rank, you can play a pivotal role in stopping this.
Appropriations – Many people ask why funds are only available from 1 Oct – 30 Sep. The reason is because this is how the government was set up by the constitution. Funds are appropriated to the Department of Defense for specific reasons. The funds most of use day-to-day is called Operations and Maintenance funds and they are only good for one fiscal year. We must “zero out” all those funds during the fiscal year or else they won’t be available for use anymore (sort of, but for this conversation let’s just say the funds are unavailable). There are other types of funds that are good for 2, 3, 5, 10 years and some with no expirations.
But it is important to note that budgeting is not easier, or better, for those multi-year appropriations. In my personal opinion, we have more budgeting problems in the multi-year appropriations then our normal one-year funds. The one-year cycle gives current commanders the visibility and control to either make good use of the funds or abuse them on non-mission critical expenses.
Budget Cycle – For our normal Operations and Maintenance funds, the funds are good from 1 Oct – 30 Sep. In a normal political and fiscal environment, units would have their funds sometime in October. Commanders at all levels could execute the funding as appropriate. In April/May, Headquarters would perform Mid-Year reviews to ensure the units are spending correctly and see if there is any excess or additional funding needed for or from other units. By law, on 31 Jul, units at all levels must be 80% spent (or obligated). Sometime at the end of August, your local finance office will assume command of all funds not designated for a specific purpose to ensure your base/post/station can execute the funds by 30 Sep. And finally, by 30 Sep, all funds must be spent.
Unfortunately, due to the inadequacy of our political and fiscal situation, we start the fiscal year in a Continuing Resolution Authority (CRA). This means that units must stay at the previous year’s spending cap and can‘t spend money on new projects. After 15 years in the military, I’ve concluded that each New Year ALWAYS has new surprises, but they have to be deferred until the CRA is over, sometimes causing more expensive future problems. Lately, Commanders haven’t received their budget until Mar-May. This only gives Commanders less than 6 months to execute their missions appropriately before the local finance office assumes control over the funds. During CRA and the short time Commanders have funds available, this may be the reason why you don’t have funds when you needed them. It could be simply they don’t have the funds available at that specific time. If this happens to you in your unit, then you need to get with your Resource Advisor/Resource Management team and make sure you have a solid spend plan to forecast your requirements and to ensure cash availability.
Unfunded Requirements Listing - Sometime halfway through the fiscal year, units will generate an Unfunded Requirements Listing to track all the requirements of the unit. At the end of the fiscal year, units may get additional funding to buy down items on the list. A good commander will put most of the money for mission requirements but it is important to spend a portion on Quality of Life initiatives. Commanders at each level will prioritize which requirements are the most important. This is where the problem usually comes from. Some commanders will prioritize non-essential requirements OVER essential requirements. There could many reasons but most aren’t as malicious as the stories seem. Commanders often have better visibility on issues and the direct impacts to the Wing. So it may seem like the wrong choice in your circle of influence, but the Commander may have a better sight picture. Unfortunately though, and despite plenty of opposition, I’ve seen Commanders spend a lot of money on items not essential and, while they may be permissible, waste money that could have been spent on much needed items.
What can you do to stop the wasting of money? Regardless of your rank, you have a part in the process. If you are junior in rank, then you can make sure your bosses are keenly aware of the requirements you need.  You can maintain a “wish list” of the items you need to complete your mission. Do all the leg work to be prepared to purchase the item, so you only need funding to execute. Sometimes the first prepared is the first to receive money. If your rank allows you to be in the prioritization discussion, and then make sure you voice your concerns about what truly is mission essential. Some Commanders make decisions based on the “squeaky wheel” or the” most recent requirement” and they need your insight to what is actually mission critical and what isn’t. If you are a decision maker, then listen to your subordinates on what is truly mission critical or not. If you are a commander, remember that the “Gucci” days of infinite funding are gone and large expenses may be taking away from the core mission.
Personal Story: I remember being in communications- electronics maintenance and needing some parts, $30K total) that couldn’t be purchased under normal supply conditions. We were told we couldn’t buy them because there wasn’t any money. But at the end of the fiscal year, the unit Commander purchased several $20K glass display cases to hold squadron memorabilia. Two things could have happened there: 1) My message of mission critical parts never got to the commander in the appropriate forum or 2) The commander chose the glass display cases versus mission-critical parts. Either way, from my point of view, in my circle of influence on the mission, it seemed like money wasted.
Have you experienced any good or bad funding decisions?  Leave a comment and let me know.

Sunday, April 20, 2014

Give Me That Passive Income


Passive income is when you generate income continuously without doing something. Our military retirement is a “defined pension” plan and after 20 years or more of service, we collect passive income for the rest of our lives. This is one of the ways rich people stay rich—by generating more passive income. The goal is to establish multiple streams of passive income before you retire.  Here are examples of the most common types of passive income.

·         Interest – The most common type of passive income is generated by interest.  Your bank accounts, emergency cash account and brokerage accounts all should be generating interest. Take a quick look at all your accounts and make sure they are generating interest. If not, start searching for banks that offer an interest-bearing checkings or savings account. If all your accounts already have interest rates, then make sure you are generating the highest possible interest rate.  Go to www.bankrate.com and search around for the highest interest-rate accounts or ask your bank if you qualify for different types of accounts that may generate more interest. I have USAA for my checkings account, CapitolOne 360 (e-mail me for a referral link so we can both make money) for my emergency savings account, and my Fidelity brokerage accounts (IRA and taxable) both pay interest.

·         Dividends – Most rich people earn a majority of their money through dividends from dividend-paying stocks. In 2003 the tax rates were changed and dividends were only taxed at 15% versus just being added to your income, potentially bumping you up a tax bracket. Even the behemoth Microsoft (MSFT) and Apple (AAPL) started paying dividends after the favorable tax law change. When investing in stocks, make sure that your overall portfolio yield is more than a 30-year treasury bond, or else you may be taking on more risk for less reward.  You can go to Yahoo! Finance home page and see the yield for a 30-year treasury bond and then check your portfolio. If you invest in mutual funds, then find some mutual funds that pay a higher yield. Do the same with stocks. Dividend stocks tend to be less volatile too. If you are a riskier investor you can look at phone companies *AT&T (T) or *Verizon (VZ), utility companies *SunGas (SGU) and Real Estate Investment Trusts (REITs) Annaly Capital *(NLY) for the highest yields. You should also find companies that regularly raise their dividend payout rate too *Johnson & Johnson (JNJ). If the stock market scares you, you can seek interest rates from Certificates of Deposit (a.k.a. CDs [you can check those rates on www.bankrate.com too]) or Treasury Bonds, from 6 months to 30 years.

·         Real Estate – I put this one under “passive” cautiously. Anyone who’s owned a house knows it’s anything but passive. But after the maintenance is done, you’ve found a good property manager and the house is rented out, it becomes passive income. If you purchase homes while you’re young with 30-year mortgages and some homes while you’re older with a 15-year mortgage, then these homes could be paid off by the time you retire (59 ½ or older). The mortgage you’d be collecting would be passive income. For over 4 years, I was paying $1,500 every month to live in a house that had been paid off for over 20 years when I was stationed at Vandenberg AFB, CA. The house was in “decent” condition so my landlord was basically earning $18K a year just from the one house. At the end of the four years the house started needing some major repairs [not caused by us], but even after those repairs, he earned $50K+ from me in passive income. Imagine if you had one to five rentals. Our frequent PCSing in the military gives us the potential to purchase new homes each PCS and I’ve met many successful military landlords who did just that.

·         Rewards – I’m a big fan of Bitcoin (read more about Bitcoin with this post I did: Bitcoin). A lot of people complain that Bitcoin is unregulated, not-easily used and purely digital, not backed my anything. But a lot of us already using a form of digital currency with our credit card Rewards. We receive a different type of interest called Rewards when we use our credit cards. Some cards offer airline miles, gift cards or actual cash. I use my credit card to purchase everything and then pay it off every paycheck so I get all the rewards without paying any finance charges. I’m basically earning Rewards for free. Depending on how much you spend, you can look at getting a reward card with an annual fee and get all types of awards. It’s important to compare the annual worth of your rewards and compare it to your annual fee and make sure you are making money. These Rewards are unregulated, can only be used on the products your credit card allows and purely digital. During the 2008 financial crisis, many banks went under and the Rewards were lost. Only some of the banks honored the previous banks’ rewards system.
BL: If you’re not earning interest or rewards on any of your normal banks accounts, then you should switch now. Continue to grow your passive income. This blog and my YouTube channel are attempts on earning passive income. At the end of a 20+ year military commitment, you can supplement your military retirement with all kinds of different types of passive income.

* These stocks are used as examples and not recommendations to buy. Of the stocks mentioned, I only own NLY.

Wednesday, April 9, 2014

Should I Be Concerned About High Frequency Trading (HFT)?

What is High Frequency Trading (HFT) and should you be concerned? I’m sure you’ve recently seen some news reports about HFT and depending on your news sources’ political bias it may oppose or support HFT. The audience of this blog is primarily military members E1-O6 and knowing that, my personal opinion, is that High Frequency Trading should not concern you, from a threat to your financial goals perspective. HFT doesn’t prevent you from reaching your financial goals nor is it “stealing” from you as some articles suggest. It may impact your ideologies, in terms of right and wrong, fair or unfair, to tax or not to tax; but as far as your financial goals, HFT should be irrelevant to you.
High Frequency Trading (HFT) is a term used for computer programs that execute millions of trades within minutes. The HFT you are currently reading about is used by Stock Exchanges to match buyers of stocks will sellers of stocks and vice versa. For each trade, the HFT earns $.0015[1] or somewhere around there, but multiplied my millions of traders per day. Your first thought should be quoting the “Office Space” movie where the protagonist is explaining that he is “taking” a fraction of a penny, so it’s not really stealing and Jennifer Aniston rightly rebuts, saying it is “stealing.” The difference between the Office Space movie and the recent HFT articles is Accounting principles actually account for those fractions of pennies, so taking them is really stealing. The HFT you are reading about is actually part of the system, right or wrong, it is a necessary “evil” for our stock exchanges.  For every buyer there has to be a seller and these HFT machines provide that service. The problem is now we have HFT machines placing buy and sell orders a million times a day and other HFT machines placing those purchases. If the market moves in a way different than the HFT is programmed to handle, the market could swing wildly, affecting our 401(k)s, TSPs, IRAs, and investment accounts. On May 6th, 2010 this scenario happened and the DOW Jones lost 1,000 points or 9% in less than an hour[2]; but, it was the same HFT computer programs that enabled the market to bounce back to normal. NOTE – I was at work when this “flash crash” occurred and would have loved to buy stocks during that hour and get some quick returns.
Should you be concerned? As of now, no, you shouldn’t be concerned. HFT trades makes up 50%[3] of the daily activity on the New York Stock Exchange and some articles use that number to scare you; however, the large investment banks still hold a majority of the stocks in mutual funds providing a balance to the market. So until something changes, HFT provides both a scary volatility and a scary balance to the stock markets. You should continue applying sound financial principles and HFT won’t affect you. 1) Establish an emergency fund 2) Eliminate or Reduce Debt 3) Max out tax-advantaged accounts TSP, IRAs, 401(k)s, 529 plans, 4) Save and invest everything else. HFT sounds scary, but for us normal investors, it doesn’t affect us. If another flash crash happens, it could provide an opportunity to buy. If a flash increase happens, it could provide a solid selling opportunity.
Final Thought:  Values of anything have increased wildly in a massive bubble creating winners and then popped, leaving losers, even before computers were invented. One of the first examples of this is the prices of Tulips in the Netherlands in the 1600s and High Frequency Trading was not around then. Getting rid of HFT won’t stop bubbles from forming and won’t collapse the whole financial system. Until something changes, keep investing smartly by diversifying and avoiding fees and taxes. 


[1] http://www.investopedia.com/terms/h/high-frequency-trading.asp
[2] http://blogs.wsj.com/marketbeat/2010/05/11/nasdaq-heres-our-timeline-of-the-flash-crash/
[3] http://www.investopedia.com/terms/h/high-frequency-trading.asp