Military Finance Report

Tuesday, October 14, 2014

Active Thrift Savings Plan (TSP) Participation

In the past week, the DOW Jones has dropped 1,000 points (6%). If you're like me, then you should get excited when you see quick market drops because they offer better buying opportunities. It's like your favorite pair of shoes went on sale. Even if 100% of your retirement savings is in the Thrift Savings Plan (TSP), you can still take advantage of stock market dips and rallies.

The easiest way is to log into www.tsp.gov and change the percentage you contribute to each month. The default fund is the "G Fund" which is the safest but offers the least return. It's very important to check that you don't have 100% of your retirement savings in the "G Fund"; especially if you're under 40-years old. When the stock market dips for a couple of months, you can increase the amount of money you have from each paycheck into the C, S or I Funds. When the stock market rallies, you can reduce the percentage if you're uncomfortable with the risk.

Another way of taking advantage of stock market dips and rallies is to request an Interfund Transfer (IFT). This changes the percentage of your overall portfolio by moving the selected percentage into a different fund. You can increase the percentage to the C, S, or I Funds during stock market dips. TSP has a limit to only 2 IFTs a month. You can request an IFTs by logging onto www.tsp.gov or you can call the TSP ThriftLine. (https://www.tsp.gov/planparticipation/interfundbp/IFTs.shtml)

Tuesday, October 7, 2014

Budgeting Made Easy

For most people, being on a budget feels like being on a diet. The first thing people think of when they consider a budget is restrictions. Having a budget isn’t about restricting; it’s more about knowing where your money is going and knowing where your money goes is one of the most crucial steps to financial planning. I recommend doing the 30-day spending challenge I wrote about here: 30-day Challenge to track your expenses. Creating a simple budget is easy. Here’s how I recommend starting.
1.       Income. On the left side of your excel sheet or piece of paper, list how much you make in a month. Then on the right side, list your bills.
2.      Fixed bills. Start with listing your fixed bills. These are the bills that never change regardless of how you conduct your life and/or the minimum payments on installment loans. This typically includes rent/mortgage, insurance, car and student loan payments and sewer/trash bills. Generally speaking, you have no control over these bills.
3.      Variable bills. Next, list your variable bills. These are bills where if needed, you can reduce them if you need additional money. This typically includes gas, food, cable, phone, electricity, water, etc. When people come to see in dire financial need, it’s easy to reduce fast food consumption or simply downgrade current internet and cable service freeing up additional income to get out of their predicament. Use an average or use the last month’s bill to keep track of the amount.
4.      Take your income less your fixed and variable bills. Subtract your bills from your income and see how much “discretionary” funding you have available. The amount you have left will determine how you should proceed with your budget.
5.      Credit Card debt. Always list your credit card debt as a bill last. It is important to understand the negative impact of credit cards. Depending on your financial situation, you may only be able to pay the minimum payments from your available funding. If you have more money after you pay the minimum payments, then put more towards your credit card debt to help pay it off sooner.
6.      Savings. After paying your bills and credit card debt, the rest can be put to whatever savings strategy you are pursuing.
Creating a budget is that simple. It doesn’t require complex excel knowledge, a mathematics degree or expensive apps. If you get a promotion, you can quickly see the impact so you can increase your credit card payments or your savings. If you get into financial trouble, you can start reducing how much you pay towards your credit cards or you can put more money towards your variable bills. One quick tip: Don’t round your bills. People who round their bills, miss an opportunity to focus fire on financial objective. That being said, here’s a sample budget.
Income
(Step 1)
Fixed Bills
(Step 2)
Variable Bills
(Step 3)
Income – Bills (Step 4)
Credit Cards (Step 5)
Savings
(Step 6)
$5,000
-$1,500
-$500

-$200


-$750
-$250

-$150


-$250
-$200

-$75

$5,000
-$2,500
-$950
$1,550
-$425
$1,125


Thursday, October 2, 2014

Travel Policy Changes

Starting 1 Oct 14, there will be significant changes in authorized reimbursable expenses. The Joint Federal Travel Regulation (JFTR) and Joint Travel Regulation (JTR) has been merged and the changes have been made. In my opinion, the JFTR/JTR are very complicated to read and analyze. Here's a quick update from what I can see. Full details can be found here: (http://www.defensetravel.dod.mil/site/news.cfm?ID=29).

BL: ATM Fees, CONUS laundry fees and transportation tips are now covered in the FY15 incidental rate and are no longer reimbursable.

Most customers tend to be very familiar with Appendix G of the JFTR and significant changes have been made to clarify what will be covered in the Incidental portion.

Starting 1 Nov 14, the long-term TDY rate has been significantly lowered. The reason behind significantly reducing the rates is quoted here.

"The commercial lodging industry considers stays greater than 30 days to be “extended stays” and typically offers reduced rates to ensure occupancy.  Travelers may also consider furnished apartments or similar types of lodging which are typically cheaper than room rates in commercial lodging.  Data analysis demonstrates the flat rate per diem adequately covers lodging, meals, and incidental expenses, more accurately reflecting actual costs incurred."

During times of fiscal constraints, it's important for the Department of Defense to identify cost savings but are these cost savings at the expense of travelers on mission-critical TDYs? What are your thoughts on this?

Sunday, September 21, 2014

Military Retirement Plan

A majority of the people I've helped with their finances have been military members within 5 years, or even days, from retiring. They're concerned about only receiving 50% of their basic pay and not receiving BAH or BAS anymore. Anytime is a good time to start getting your finances settled but the earlier you start in your military career the better.


If done correctly, military members can retire from working at 40 years old. Imagine not having to work at the end of a 22-year career and only being 40 years old. When military members retire, after 20 years in the military, we get 50% of our basic pay (only basic pay) and an additional 2.5% each year after. If you start at the beginning of your career, you can have enough to make up the remaining portion of your basic pay when you retire.


For example, an E-8 at 22 years makes $5,115.30 a month (in 2014). The E-8 is entitled to 55% of his or her basic pay in retirement. 50% for twenty years and 2.5% for both years after. This would be $2,813 every month for the rest of his or her life, or $33, 756 annually and if you start saving now, you can earn enough income to get paid like you did when you were in active duty. You can potentially make enough to earn what you were getting in Housing Allowance (BAH) and Food (BAS).


To make up the remaining pay the E-8 would have to save up $552K and earn 5% when he or she retires. This may seem like a lot of money to save up, but by starting your Thrift Savings Plan (TSP) right away, investing in an Individual Retirement Account (IRA), buying real estate, living within your means and keeping debt to a minimum you can easily save this much money (or near it). $552K earning 5% a year would earn you $27,624 a year.


This discussion is theoretical because you can't withdrawal those savings from your TSP and IRAs until you are 59 1/2. But the point is, starting early and saving as much as you can will put you in a prime retirement position.

Saturday, September 13, 2014

30 Sep End of the Fiscal Year is Coming

It's getting close to 30 Sep and, for us Department of Defense finance folks, that means it's time for the end of the Fiscal Year. For some people, conversations about the military budget may sound like a foreign language but regardless of your rank or position in the military, it's a language worth learning. Understanding the budget process can help you immensely in your career from the lowest ranking enlisted member to a 4-star general. Here are some common terms you may need.


  • Fiscal Year - Our fiscal year goes from 1 Oct to 30 Sep. So FY14 started 1 Oct 13 and will end 30 Sep 14.
  • Appropriations - These are the different types of funds we receive from Congress. Article 1 of the U.S. Constitution states, "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law; and a regular Statement and Account of Receipts and Expenditures of all public Money shall be published from time to time." This means we can only spend the money given to us by Congress; no more, no less. 
  • "O and M" - Your Operations and Maintenance (O&M) appropriations are the types of funds that 90% of the military use in their day-to-day operations. There is also Procurement, Investment and R/D.
  • Obligations - An obligation simply means we've spent the money given to us. You may also hear "commitment" which means we've committed to spending money but we haven't actually completed the transaction. By 30 Sep, the DoD must be 100% obligated which means in the month of September, a lot of End-of-Year spending happens. Some of this spending may get frivolous as each level or organization ensures it doesn't have to return the funds given to them. For tips on how to prevent this frivolous spending, check out my post earlier this year. End of Fiscal Year Discussion
  • Bona Fide Need - This is a law that states we must have an immediate need for something when we purchase it. So you can't use FY14 funds to buy something you know you won't need until March FY15. The law allows us to purchase some items that have lead time so we have necessary supplies and equipment the first couple months of the new FY. 
  • Form 9 - Certain requirements need to be purchased through your Contracting organization. In the Air Force, we call this a Form 9. I'm not sure what the other services call it but this is the Form your resource advisor will help you create to get the requirement you need. It can take a significant amount of lead time, so if you need something, get the leg work done sooner than later. 
  • MIPR - This is an intra-agency form we use to send other agencies money to execute a requirement for us. If you have a requirement that will require a MIPR, then you'll have to get with your Resource Advisor to find out what information you'll need.
  • "CRA" - Continuing Resolution Authority (CRA) is a temporary, yet restricted, authority to spend money until Congress passes the budget. Starting 1 Oct to the time the budget is passed, the DoD is under CRA which means you'll be restricted in how much you can spend and you're unable to start any new projects. Many units become risk averse and severely restrict spending during this time.
  • Initial Distribution - Once the budget has been passed, each organization will eventually get its Initial Distribution, which just means it will get its budget for the whole year and normal spending can resume.
Hopefully, this helps you understand some of the conversations you'll hear this month. A lot of military members get bogged down with arguing and fighting how the system has been set up, but the successful ones learn the system. If there is a term you hear that you want explaining please leave a comment and I'll explain it.

Monday, September 1, 2014

Started from the Bottom Now...Wait..I'm Still Here

 A lot of my readers really enjoyed one of my previous blog posts, "Started From the Bottom", where I quoted a famous hip hop song by Drake. The target audience was for young junior enlisted, but was general enough for anyone just starting out in the finance world. But some readers reached out to me and they were concerned about being over 30-years old and having very little flexibility to start improving their finances. They felt like they were at the bottom and couldn't go anywhere. Here are some steps to take if you're at the bottom and nearing the breaking point with your finances.
  • Find flexibility. Most people feel like they have no flexibility with their finances. They've reached a point where there is no money left over between paychecks and they may even be adding more to their credit cards each paycheck just to get by. This is the standard negative snowball effect which will ultimately lead to bankruptcy. You must stop this process. A good way to find additional savings is to track everything you spend for 30 days. Inevitably, you will find some savings; whether it is: not going out to eat one night, reducing your cable or phone bill or finding a cheaper alternative to a routine expense. Use the flexibility you find to stop using your credit cards each paycheck.
    • Finding this flexibility is the single most important step. A lot of people start to feel "suffocated" about their financial position and they ignore it making it worse. Track everything for 30 days and find the flexibility. I know it's there. Contact me at bjone6@gmail.com anytime and I'll help you find the flexibility (for free, I'm not selling anything, absolutely free). 
  • Pay down your credit cards. Some people find themselves having no money after they pay their normal bills and their credit cards. You must pay down your credit card debt quickly, even if it's only adding $5 to your minimum payment. This extra $5 will go straight to the principal and it will start building momentum to paying of the credit cards quicker. You'll start noticing the minimum payments go down and you'll start to open positive options in your financial life.
  • Seek assistance. If you're a military member, go see your First Sergeant or your service-specific Family Readiness center. The Family Readiness Centers are an underutilized benefit we all have in the military. They employ or have access to professional money managers who could help you with your finances for free. Financial advice in the civilian world could cost $50-$200 an hour.  If you're financial situation is really bad, they can grant you a no- or low-interest loan to help prevent bankruptcy.
Starting from the bottom can be difficult but there are many ways to get out. If you're staying up late at night because you're worried about your finances then you need to find help. Finding flexibility and paying down your credit cards can be a slow process but it'll be worth it when you can finally say, "Started from the bottom, now I'm here."

Saturday, August 23, 2014

Why I'm Not a Billionaire Yet...

To date, I’ve been unsuccessful at “beating the market” and becoming a self-made millionaire/billionaire through investing. In some years, I’ve beaten the market and professional investors; however, over 12 years of investing myself, I’ve managed to barely get a decent return compared to inflation. If I had put all my money into an Exchange Traded Funded (ETF) and have done no research or any active managing, I would have a significant higher rate of return. Here are some lessons and some recommendations I’ve learned which I’m hoping could help other self-managing investors.
·         Investing takes time. To be successful at investing, you must do a significant amount of research, all the time. You have to read books, stay current on events and research all types of market patterns, ranging from coffee prices, labor disputes, droughts in Russia to major political changes. The more you know about an investment’s “circle of influence” the better you’ll be at making a decision on when to buy. Personally, I do not spend the appropriate amount of time it takes to be extremely successful. Those who are successful make it a priority in their lives.

o   Recommendation: I recommend going to SeekingAlpha.com, Fool.com and Morningstar.com and Marketwatch.com to keep you updated.

·         Investing takes patience. One of the causes of losses in my portfolio has been a lack of patience. I jump into investments without sufficient data because I was impatient and was hoping to “get rich quick.” Or conversely, I’ve sold out of stocks because I was impatient with the slow rate of return. You have to be able to shut down your emotions while making investment choices. My obsession with becoming a millionaire has stopped me from being able to shut down my emotions. I recently joined some young people doing quick options and penny stocks and my emotions got the best of me and I jumped in without controlling my emotions. I’ve lost quite a bit of money doing the same thing with other investments.

o   Recommendation: Don’t jump into any investment unless you are fully prepared. Know where your entry and exit points are. Know how much you expect to profit from each investment.

·         Investing takes persistence. Gone are the days when individual investors can invest and forget. If you are going to manage your own investments then you must be active. This doesn’t mean day trading but it does mean spending a lot of time each day evaluating your investment objectives. I don’t have persistence and if I do, it’s inconsistent. If I pick some good investments, I start to become complacent. If I lose too much money, I’ll become disheartened and turn away from investing. My lack of persistence has left me on the sidelines during bull market runs and left me holding on while all my stocks dropped during bear markets.

o   Recommendation: I recommend checking your news sources daily and then focus on your strategy’s results on the weekends. Utilize trackers to measure your performance and compare to the market or similar investments. You may have earned a profit but was it less than a passively-managed strategy? This persistent evaluation will keep you on track with your goals and help make minor corrections at the correct time.

·         The power of dividends. For almost a decade, I had ignored the power of dividends. I spent most of my time trying to find the next Apple (AAPL). Many investors who focus primarily on dividends may never see their portfolio totals skyrocket in a couple of days or months, but over time they will consistently match or exceed the market because the dividends are reinvested during bear markets and then the stock rebounds giving you more capital gains and more dividend income. Many “boring” companies also increase their dividends throughout the years. So your $1,000 investment earning a 4% dividend 10 years ago but would now be getting an 8% dividend because the company kept increasing its dividend yield.

o   Recommendation: When using stock filters always consider dividend yield and dividend growth. If you are investing in mutual funds, consider high-yield or income based funds.
 If you are looking at becoming a self-made millionaire/billionaire in the stock market, then I hope this has helped you. But even for those just starting out, I hope this information has helped.