Military Finance Report: November 2013

Saturday, November 23, 2013

Make Money With Me!

One of the most important steps in financial planning is to ensure you have an emergency savings account.  If you have trouble saving, then putting your money into another account that has a time delay in getting access to your money is the best advice.  I use CapitalOne 360 (formerly known as ING Direct).  It takes a couple of days for your money to be available and another couple of days to get your money transferred back to your account.

If I were to need to dip into my emergency savings account then I would put the expense on my credit card and withdrawal the money back into my normal checkings account to instantly pay off the credit card.  All interest rates are low in the country and CapitalOne 360 is currently at .75%.  You can find higher interest rates at several banks and you can always check the rates using www.bankrate.com.  Make sure there is $0/$1 to open and no annual fees.

An emergency account should be 3-6 months of all your expenses.  Emergency requirements are usually where financial troubles start; whether it be your car broke down, some medical expenses or any other unexpected requirement.  People will use credit cards or worse, pull money out of retirement accounts and end up paying interest and/or taxes and the unexpected requirement costs even more.  When people are strapped, these emergencies can be the breaking point.  Before saving for retirement or even reducing debt, it is important to have an emergency savings account that earns interest.

When I first started using ING Direct, they were consistently rated 5 stars and were in the top 5 highest interest rates.  I've been with them for a very long time and the interface is super easy.  They are still rated 5 stars on Bankrate but their interest rate is lower than some other banks.

If you have $250 to start an emergency savings account and are interested in starting your emergency savings account with CapitalOne 360, then please use this link to sign up.  https://r.capitalone360.com/V1AVDPYTUb You will get a $20 sign up bonus and so will I.  Remember, you need to open the bank account with at least $250.

Tuesday, November 12, 2013

Opinion: Military Pay and Benefits To Be Cut?

During a recent keynote address at the Global Security Forum, Defense Secretary Chuck Hagel warned that we need to look at cuts in military pay and benefits so we don't have a military that is, "well-compensated, but poorly trained and equipped, with limited readiness and capability."  This is a very emotional, politically-charged and uncomfortable conversation to have and any politician looking to support this viewpoint would be facing certain election death.  This may surprise many of my readers, but I support this viewpoint.

There are many reactions that you may have against cutting military pay and benefits and they are understandable.  As a Finance Officer in the United State Air Force, I admittedly am suggesting that my pay and benefits get cut.  But this country and our culture has a problem with overspending.  We do it as a population and it bleeds into our political policy. The Department of Defense (DoD) is the largest expenditure of taxpayers' dollars so it makes mathematical sense that the DoD should bear a large portion of the reductions.

According to Secretary Hagel, over 50% of our costs come from military pay and benefits and while budgets have decreased our pay and benefits have increased.  Our pay and benefits are a prime target until the DoD can learn to be fiscally responsible with their contract over runs, a horrible fiscal-year process and reducing the normal "fraud" that has become part of our culture.  Our pay should be normalized to the rest of the country.  Politicians are too scared to reduce our pay like a civilian corporation would which leads to the opposite of not increasing our pay like a civilian corporation would.  Our pay should match the ebb and flow of our civilian population and the economy since it is taxpayers' that fund the DoD.

The military offers the best benefits package of any civilian corporation.  At the end of a 20-year career, people can become theoretical millionaires.  Our health-care costs have skyrocketed past the civilian populations.  Take a sample size of your lowest-level unit and see how many aren't even using the amount of benefits that we get as military members.  Our fitness centers are becoming larger and larger at every base while we have flying operations that can't fly and soldiers that can't be equipped properly.  These are all additional costs that can be reduced.

Many people would argue that we should cut CEOs' pay and celebrities' pay before we touch an Airmen's pay currently serving in Iraq protecting our freedoms.  Now, while that example brings up emotional truths, we must realize that the consumer funds CEO and celebrities' pay while the taxpayer funds the DoD.  Right or wrong, our civilian population has voted with their dollars to keep CEOs and celebrities' pay at the levels they are at now, but they did not choose to pay for the large military industrial complex.

Many people would also argue that we shouldn't touch the pay and benefits and we should stop spending all the money on our broken end-of-year process that encourages a soft level of fraud to ensure we zero out the books so we don't get cuts the next year.  While this is infuriating to me in my career, the amount of money that is actually spent wouldn't come close to a meaningful percentage enough to make significant changes to our force.  I've personally seen the process and while I'll admit it's broken, leadership from the lowest levels to the highest levels can reduce and stop it.

Many people would argue that the DoD is not the problem and it's all the entitlement spending our country gives out.  This is a politically-charged emotion and indeed, this country's entitlement spending is out of control.  But to achieve the amount of reductions we would need to reduce the deficit and control the national debt, we would have to totally eliminate our social safety net in America and in real economics that is as dangerous as spending too much on entitlements.  A country must have a strong social safety net to encourage and support massive growth.  That being said, a compromise could be worked out for a matching reduction.  So for every dollar that we reduce in military pay and benefits we should also reduce entitlement spending by a dollar.  I don't know if that has been recommended by any politician yet, but if it hasn't, I would like the credit :)

Our personal debt, national deficit and the national debt are becoming too large too ignore.  We must reduce spending and we must lower our dependence on foreign credit.  In my opinion, our national debt is more of a security threat than any terrorist group in the world.  In my opinion, everyone in America believes we should reduce spending as long as it doesn't affect their own lifestyle.  They want cuts to everyone else.  It's the "not my bubble" theory.  By percentages, the majority of the spending comes from the DoD hence a proportional amount of cuts should come from the DoD.  And if 50% of the DoD's costs come from military pay and benefits, then mathematically the cuts should also come from pay and benefits.  Although it's a difficult position to take, I support Secretary Hagel's decision on reducing military pay and benefits.

Sunday, November 10, 2013

USAA Mover's Advantage Program Review Part 3: The Offer and The Loan

Read Part 1 here: Part 1: First Contact
Read Part 2 here: Part 2: Update

As I mentioned in Part 2, Louisiana has complicated school zoning laws so my wife had to go there two months before and try to find a house so we can close before we arrive.  Louisiana was going to allow us to use the Temporary Lodging Facility zip code but that placed our kids in undesirable schools.  We had to find the schools we wanted then find which housing communities are in that zone and then refine our search.

Our USAA-sponsored realtor had his site populated with houses in those zones, in our price range with the requirements we wanted so we had a good idea of what we wanted to see.  My wife flew in and saw a couple of houses that night.  The next day she saw more houses, and using Skype, we discussed her top three houses.  To her surprise, I picked one of the more pricier houses on her list and was her #1 choice.  The reason why I chose that is because all of the houses were comparable in meeting our requirements, but the more expensive one was actually a better value. 

The value of comparable houses is expressed in cost per square foot.  This house was only $125 a square foot versus $133 and $136 for the other two in her top three.  Based off asking prices, the average for the Barksdale AFB area was $135.  So I was getting this house for $10 a square foot cheaper; or a 7% discount to the area average.  Our realtor told us he would calculate all the prices of our top three and see what kind of flexibility we had.  The next day my wife told our realtor that we selected the more expensive one and he told us that the house's, we picked, price was just lowered so we didn't have any price flexibility.  But since the owners were trying to move out quickly, our offer was the asking price minus closing costs and to keep the hot tub (our realtor's idea, not ours...lol).  Our offer was accepted!

A surprise to us, our USAA-sponsored realtor actually recommended that we at least consider a local mortgage company versus going with the USAA-mortgage company.  I was already concerned with USAA's mortgage company's communication and response (read more about that in Part 1, link above) so we got the information from a local mortgage company.  They were very friendly and gave us an Itemized fee worksheet for each loan at each percentage rate.  USAA Mortgage company didn't offer any of that visibility/transparency.  I used that itemized worksheet and called USAA to go over each fee.  Since I was using my Veteran's Affairs loan, there was little difference in the fees, but the advantage was that the local mortgage company was able to work with the logistics of us not being in Louisiana during closing.  USAA's mortgage company did not offer that service.  We would have to close by mail and could significantly extend the closing price if we went through USAA.  We chose the local mortgage company.

So far, these were the costs that I've incurred while purchasing a house:
  • $50 for the USAA pre-approval (they were going to charge another $300 if I chose to go with them).  I will have to call them and tell them we are going with a different mortgage company, so that $50 may be lost.
  • $1,000 for my wife to fly out, rent a car and stay in a hotel to find the house and put an offer on it
  • $1,200 for the escrow deposit
  • $350 for the home inspection.  The buyer pays this cost to ensure that the seller doesn't purchase a shady inspector
  • $400 for an appraisal fee but this check won't get cashed unless we (the buyers) back out of the deal
I look forward to hearing other stories of purchasing homes using any other method specific to military members.  

Saturday, November 2, 2013

USAA Mover's Advantage Review Part 2: Update and Pre-approval Increase

To read my first review go here: Part 1: First Contact.

After the troubles with the first contact, I was referred to a realtor.  Since then, house hunting has been going great.  We gave the realtor our wish list and he updated his website which automatically gives us houses to look at in the areas we are searching for and in the price range we indicated.

Due to the uniqueness of Louisiana's school zoning laws, my wife is going to travel to Barksdale two months prior for a couple of days and look at homes; and possibly put an offer on one we like.  The zoning laws complicated our search because we must be living in a zip code to attend the schools that we want.  The school system will allow us to use Barksdale's Temporary Lodging Facility's (TLF) zip code but the respective schools aren't ranked well.  So we are going to try and get an established zip code before we get there so our kids can go to the higher rated schools.  Louisiana's public schools aren't rated that well and as you get further from certain locations, it gets really bad really fast.

In Part 1: First Contact, we initially set up a pre-approval and then I called to get it increased before my wife gets there.  I just called the mortgage center and it only took about 10 minutes and the representative was really nice.  Things will move quickly once we put an offer down on a house and as promised, I will keep this blog updated.

If you have any experiences using USAA's Mover's Advantage Program please leave a comment.