Military Finance Report: September 2013

Wednesday, September 25, 2013

Military Spouse: Financial Institutions to Advance Pay If There Is a Government Shutdown


USAA, Navy Federal, and Marine Federal Credit Union emerge to the aid of military members if the government shuts down.

On September 30 at 11:59 p.m. if Congress has not reached an agreement on the continuing resolution, the government will shut down. When that occurs, the military’s October 15th paycheck may be delayed.  We reached out to financial institutions to see what solutions they may have in place for their military members.

Sunday, September 15, 2013

Thrift Savings Plan - Lifecycle Funds Information

Do you know you have to save for retirement but are intimidated by the whole process?  Do you wish you could just give your money to someone and they would invest it for you?  If this is you, then don't worry about it and know you're not alone.  The Thrift Savings Plan, and other corporate banks, have mutual fund options for you that mimic having someone invest for you.  In the Thrift Savings Plan you have the Lifecycle Funds.

The Lifecycle fund automatically invests using the strategy of taking more risk while you're younger and less risk as you get older.  Each year that you get closer to the target retirement date, your fund will automatically "reallocate" your money to safer investments.  Anytime you set up your TSP in MyPay, the default fund is the "G" fund.  You must log onto and change your allocation to one of the Lifecycle funds.

There is the L Fund Income, 2020, 2030, 2040 and the 2050.  The goal is to pick a fund that's closest to your retirement date and choose that.  The income is reserved for people already in retirement, 2020 will be for those getting close to retirement in the next 7 - 10 years and so on until the 2050.

Corporate banks have similar funds called "Target" funds.  They have target dates just the way the TSP does.

All investments carry risk with them.  The risk of investing in Lifecycle funds is that the variable they invest with is risk-to-age models.  This risk may put someone at the risk of unpredictable changes in the market that some people would like to avoid or to take advantage of.  These funds take away the flexibility of active management.  As with all TSP funds, you can sell in and out of the funds so you can stay in the Lifecycle funds for as long as you're comfortable and then switch to avoid or take advantage of market patterns.

Tuesday, September 3, 2013

The Secret to Personal Finances

Once you understand the secret to personal finance, you will look at the world differently.  Financially independent people learn the secret early and continue to use it throughout their life.  Notice how I don't use the adjectives "rich" or "wealthy" people.  Just because you are rich or wealthy doesn't mean you are financially independent.  Financially independent means you have the means to live within your means and self-sustain at current income levels for long periods of time.  The secret to personal finances is understanding RETURN.

I remember being in my early twenties and becoming debt free and feeling like I was on top of the world.  After the excitement wore off, I realized that I still wasn't financially independent.  It is then that I realized that debt used correctly, also known as leverage, can RETURN you more money than being debt free.  Consider acceptable levels of student loan debt, a house loan or investment debt. Financially independent people utilize debt to get more RETURN on their money than debt-free people do.

Anytime someone asks me for financial advice I look at the maximum RETURN on every dollar they are asking me about.  Some people automatically assume that I will recommend paying off any debt before doing anything else and then are surprised when that's not always the case.  For example, you can buy a stock paying dividends at 3% or a 30-year bond for 3.6%.  If you have debt that is at 2.75%, then I would recommend you let that debt ride and invest in the dividend-paying stock or the 30-year bond and make the .5% plus difference.  Or if an employer offers a 5% matching retirement contribution, it would make sense to do that than to pay off debt at less than 4.9%.  Conversely, you should pay off debt at higher interest rates than you could find in any investment type.  If you use this scenario to guide every decision and let the secret of RETURN guide you, you will become financially independent.

Whenever you spend a dollar, you must consider the RETURN on that dollar.  I struggle with spending money correctly; or spending in general rather.  Some sort of survival mechanism kicks in from my past and it's difficult for me to let go.  A $20 fun day with your family can have a greater intangible RETURN than saving that money.  Going out to dinner as a family every Sunday can provide more intangible dividends that just being at home or having my kids spend more time with friends than with me.  And the cliché, "A happy wife is a cheaper wife" is a cliché I totally agree with.

Understanding personal finances is like playing a board game without knowing all the rules and players that have been playing for a long time (the government, banks, corporations) know all the rules.  Understanding the concept of RETURN can be difficult at times, but that's why this blog is here and that's why I'm here to help.