3 Steps to Stop Living Paycheck to Paycheck

I know a lot of people, especially the junior enlisted, are quite literally living paycheck to paycheck.  After all their bills are paid, they almost have no money for anything else.  Any entertainment or unplanned expenses go on credit cards and starts the path to bankruptcy, depression and/or divorce.  Every day that passes like this makes it harder to recover from.  Their only option is to start today and get out of the negative cycle.  Here are 3 steps to stop living paycheck to paycheck:

1. Get back to zero.  The first and most important step is to get back to zero.  Track what you spend everyday and see if there are small changes you can make to get back to zero.  If you make $2K a month ensure that you only spend $2K a month.  If you are using your credit cards to supplement your income, then you will never get out of your situation.  The interest on your credit card will slowly keep increasing and your minimum payments will keep increasing.  This negative feedback loop will eventually bankrupt you the second you don't have access to new credit.  Mathematically, you can't do anything else until you get back to zero.
2. Micro-invest.  The next step is to start getting out of debt.  You can either pay the minimum payment until a credit card is paid off and wait for months or years for that to happen.  Once the credit card is paid off, you will eventually have a little more flexibility to stop living paycheck to paycheck.  A better option is to track everything you spend for 30 days and, I can almost guarantee, you can find $25 a month in places you can cut.  Put this extra $25 with your minimum payment and the math behind the compounding interest will be in your favor.  You can cut off months from paying off that credit card and finally have some flexibility from living paycheck to paycheck.  Moving small amounts of money is called micro-investing and can be very powerful for those not making a lot of money.
3. Focus fire.  Make sure you aren't rounding up on all your payments.  For example, someone has a $246 car payment and they put $250 a month towards it; a $56 minimum credit card payment and they put $60; etc.  It's better to tally up all those extra cents and dollars and focus them on paying down a credit card.  It's a mathematical principle why it's important to focus fire on your money.  Start by paying off the smallest balance and keep rolling those minimum payments to the next smallest balance.

If you are beyond the help of these tips, it's best to see your First Sergeant to see if they can help. Self identifying a problem is a courageous act.  If you're a civilian, try seeking help from your local church, friends or family members or a professional money manager.

USAA Career Starter Program

Have you heard about USAA's Career Starter loan?  It is a "signature" loan (meaning no collateral down) for officers about to graduate from a commissioning program.  The max amount of the loan is $30K and the interest rates range from .5% - 2.99% and payments are deferred for 6 months after your commissioning date.  A common question is, "Is the USAA commissioning loan a good idea?"  As always, there are two sides to a personal finance decision: the economical and the emotional.  Here are my thoughts:

This USAA Career Starter Loan is an excellent economic decision.  It's the lowest interest rate you can find on a signature loan.  When comparing a loan versus cash decision, you must use the "Rate of Return" to help guide you.  One of the smartest things you can do is to pay down any debt you currently have; i.e. other student loans, credit card debt or a car loan.  Most consumer debt ranges from 5-25%, so consolidating them into a .5-2.99% loan could save hundreds and/or thousands of dollars.  Another option is to only use enough to purchase a car which would cut the interest payment in half of what a normal car loan would have been.  Another option would be to invest in something that earns more than 2.99%.  Either way, this "cheap source of money" could be utilized very effectively.

The other side to a personal finance decision is the emotional side and the one I used to make my own decision.  I graduated Officer Training School in 2009 and in 2009 I had been debt free for 5 years and wanted to keep it like that.  I love the feeling of being debt free and it is worth more to me than some small percentages of return if I had chosen to invest it.  If I lost money investing it, I would have increased my losses because I would still owe that money back plus interest; albeit, a low interest rate.  Another emotional factor comes from those who know they can't handle debt.  If you are living paycheck to paycheck, then adding more debt, regardless of the interest rate is not a smart move.  You must know your self and your own debt/risk profile.

5 Tips for Dealing With Military Finance

The military pay system is very dynamic.  Unlike most civilian companies, your pay, and things that affect it, change continuously.  In the past 14 years that I've been in (10 of which were not in finance), finance hasn't had the best reputation with military members.  Our career field is constantly working on how best to manage the systems we are forced to use and provide the best customer service possible.  Here are some things that you can do to help yourself.

- File your travel voucher within 5 days.  This is on the back of your orders and is considered a Direct Order; however, it's not enforced.  The majority of complicated pay cases stem from individuals not filing their travel vouchers within 5 days.  You can't help the long part of rejects, slow finance response times and actual processing, but you can help your portion which is filing the voucher.  Filing your travel vouchers w/in 5 days reduces pay debts and travel card delinquencies and also ensures you are receiving the correct entitlements.

- Don't suffer in silence.  If you're not receiving the answer or service you think you should from finance, then ask for an NCO, the flight chief or the OIC (a.k.a. the Financial Services Officer).  Don't abuse the junior enlisted technician or you may create a negative response for that technician and will increase poor customer service.  Regardless of what most people think, most finance personnel want to help customers.  Don't leave finance feeling like your problem is unresolved.

- Know our regulations.  Most people say, "Why do I have to know your regulations?  That's your job."  That is very true, but it's your pay.  No one cares more about you getting paid correctly than you.  Our military pay comes from appropriated funds, which means it's taken from taxpayers and given to us by Congress.  This means the money has to only go to what's it authorized for.  So, unfortunately for many customers, if a military pay technician tells you the wrong answer, the government will still seek collections in the form of a debt.  It sucks that the military pay technician gave the wrong advice, but you still owe the money back.  The most common regulation cited for all services is the Joint Federal Travel Regulations (JFTR) for military and the Joint Travel Regulations (JTR) for civilians located here: http://www.defensetravel.dod.mil/site/travelreg.cfm

- Be persistent.  Due to various reasons, some finance can control, some we can't, resolving your pay issue may be a lengthy, laborious and complicated process.  Be persistent, but professional, with finance to ensure it gets resolved.  Don't just fire an e-mail and forget and hope it gets resolved.  Get a positive ID on the corrective action.  If we say it will pay out in 5 days and on the 5th day it doesn't, give us a call back.

- Leave constructive feedback.  If you have constructive feedback, please give it to us.  Use whatever method your local finance has for customer service feedback.  We can't improve unless we know what to improve.  If you had a positive experience, please leave that feedback too.  Nothing is more motivating than the Commander receiving a thank you note due to a positive customer service feedback.

I was a customer like you for 10 years before crossing into finance, so I bring those experiences with me and we, at least in the Air Force, are doing everything we can to get back to the basics and give the best possible service we can.  We need your help to ensure you're doing your part to take care of your finances and focus on the mission.

Does USAA Have Good Mutual Funds?

USAA has done a great job in improving it's mutual fund choices and performance.  On 30 Jun and according to their site, USAA has seven 5-star rated mutual funds and eighteen 4-star rated mutual funds.  From a quick glance, it looks like most of their highest-rated funds are from their bond family of mutual funds and might be doing well because bonds have been doing well, but there are some non-bond mutual funds on the list too worth checking out.  If you like USAA's solid customer service and appreciation for the military and want to invest with them, I would start looking at these mutual funds first.

https://www.usaa.com/inet/imco_mutualfund/ImMorningstarFunds

What do I Need to Retire?

The day after Independence Day is a great time to start your journey to becoming financially independent.  So What do I Need to Retire...This is one of the most popular questions that I get from people.  What do I need to retire?  Or another similar question, How do I create a good retirement plan?  What you need to retire is...a chair.  You will need to create a metaphorical retirement chair.  Each leg represents a revenue stream, so the more legs you have, the sturdier the chair will be.  If you have no legs, then you are sitting on the ground like being homeless, metaphorically.

1.  The first leg of your retirement chair is a pension or a defined retirement plan.  This is becoming more rare with civilian employers now, so finding a job with a pension may be difficult.  The most common, and most applicable to this blog, is the military retirement.  Civil Servants have the FERS pension and teachers, firefighters and police have their individual state pensions.  I would like to say this is the safest leg to lean on, but I can't anymore.  Corporations, with help of corrupt government officials, have made it where companies in financial trouble can reduce or eliminate pensions promised to workers that have fulfilled the requirements of earning a pension.  Either way, defaulting on pensions is uncommon and defined retirement plans should be a leg in your retirement pay.  The higher you go up in your career and the longer you work there, the stronger this leg becomes.

2.  The second leg of your retirement chair is your own retirement investments.  This leg is my favorite because it's something within our own control.  We make the leg as big or as small as we want.  Your retirement investments can be from 401(k)s, TSP, 403(b)s, etc.  At the minimum, and if applicable, you should ALWAYS at least invest enough to maximize your employer's contributions.  Your employer's contributions are basically free money.  This leg is also where your IRAs, both ROTH and/or traditional, fall under.  And lastly, this is where any other taxable money that you've managed to save comes in.  The more you save, the more revenue you can generate making the leg stronger.

3.  The third leg of your retirement chair is property.  This leg should include a paid-off house in good condition, and depending on your income range, a rental property that is managed by a property management company.  If your plan is to retire by 60, then you should own a house by 30 if you plan on getting a 30-year mortgage or 45 if you get a 15-year mortgage.  Due to unknown health reasons, you may be unable to take care of the house by yourself anymore once you reach retirement age, so make sure it's continuously in good condition by doing all the required preventative maintenance.  Your retirement income is usually less than your working income (it's usually 75-85% of your income) so it's sound financial planning if you could have the house paid off to maximize your disposable retirement income (and to spoil any grand children rotten :).  A rental property, managed by a good property management firm, is a great way to strengthen this leg and keep some good passive income.

4.  The fourth leg, and my least favorite, is your social security check.  I have plenty of personal opinions regarding Social Security, but I'll keep them to myself.  Your social security benefits can be increased by the length of time you work.  Also, you can increase your benefits by delaying when you get them when you are of the applicable age.  Social Security benefits continuously reduce while we continuously pay more to it, but there's nothing we can do about it.  The best way to use Social Security is to get as much of it you can and as soon as you can.

These four legs create a sturdy chair of retirement.  If you open a side business, get another job, write a book, etc. and earn a revenue stream with it while in retirement, then you are just increasing the sturdiness of your retirement and will be more independent. 

Military Financial Tips on Yahoo! Finance's Main Page

Wow, I'm impressed.  On Yahoo! Finance's main page, I actually saw some military specific financial information on it.  I had to share it.

Three Financial Tips For Military Members

Quickest Way to Make More Money

Whether they are strapped for cash, having difficulties making ends meet or want to save more money, people want to know what's the quickest way to make more money.  In my opinion, the quickest way to make more money is to make sure you aren't paying ANY fees for your normal banking needs.

• Start with your normal checking or savings accounts.  Are you paying a minimum balance fee?  Are you getting hit with overdraft fees (some are as high $39)?  Military members: are you paying ATM withdrawal fees?  If you are paying ANY fees for your normal banking needs, then you need to switch banks today.  Military members can use USAA or Wells Fargo's military accounts, or any big banks' military accounts and eliminate almost every fee.  If you frequently get hit with overdraft fees, then get overdraft protection.  "Consumer advocates say the best method is the standard overdraft protection which is offered when the checking account is opened and involves a signed agreement between the bank and the customer."
  Read more: http://www.bankrate.com/finance/investing/fdic-study-outrageous-overdraft-fees-1.aspx#ixzz2Xtm1GWhZ
  Follow us: @Bankrate on Twitter | Bankrate on Facebook
• Next, look at your credit card.  Are you paying an annual fee or any other fees?  My main audience is the military and unless you are a high-ranking general or have a side business that is doing well, none of us are making enough money to fully use the benefits of having a super credit card that has an annual fee.  Most credit cards have better services the larger the annual fees get.  I don't think many military members would fully utilize the services enough to recoup the $30 - $100 annual fee.  There are so many free credit cards through most main banks that it's just money you could get back to yourself.
• Next look at any of your investment accounts.  Unless you are managing more than $1M, then you shouldn't be paying more than $9.99 for commissions and you shouldn't be paying any normal fees within your investment account.  Almost every large bank offers investment options and TDAmeritrade and ETrade are still the top 2 investment houses for anyone to enter the stock market.

This may not apply to you and you've eliminated all your fees which is great.  If you don't do it on a regular basis, then read over your statements or online banking every six months and see if your banks have added any fees.  The usually mail your a 70-page pamphlet that's written by a lawyer to inform you about the new fee without informing you about the new fee, so it's good to check yourself frequently since banks or so shady.