Military Finance Report: July 2015

Wednesday, July 15, 2015

Dual Military BAH Cut

In the Senate’s National Defense Authorization Act (NDAA) for Fiscal Year (FY16), the Senate Armed Forces Committee is seeking to cut dual-military married couples’ Basic Allowance for Housing (BAH). The purpose of this blog post isn’t to discuss whether this cut is good for our military members who are already facing unique financial issues or whether the politicians and senior Defense leaders continue to choose taking risk to save money with their personnel instead of focusing on large fraud/waste procurements and programs. For a complete breakdown of the impact of this measure, please read this amazing story by the US Naval Institute.
The purpose of this blogpost is to help dual-military married couples prepare for the potential cut. To date my single most popular blogpost is when I helped prepare military members for the FY15 Reduction in Force (RIF) and I hope this blog post helps others as well.

The Proposed Cut
Currently, dual-military married couples without children both receive the “without dependent” BAH rate. For the dual-military married couples with children, the higher ranking members receive with “with dependent” BAH rate and the lower-ranking receives the “without dependent” BAH rate.

The proposed cut allows the couple to receive only one BAH rate. The highest ranking will receive “with dependent” rate regardless if they have children or not. Mathematically, this is unfairly attacking dual-military married couples because if each military member married a civilian, then both members would be receiving the “with dependent” rate. These dual-military married couples were actually saving the military money.
Prepare Now

Dual-military married couples should prepare now by taking the following steps; instead of burying their head in the ground and praying this cut doesn’t happen, like many military members did during the RIF cuts.

1.      Assess your current situation – Can you afford this cut if it were to happen right now? The Senate Armed Forces Committee called this entitlement a “windfall” of money without considering all expenses dual-military married couples go through on a day-to-day basis. Would this reduce the money you currently save or would this cause a shortfall in your finances?

2.      Start looking at the market now – If this cut happens in FY16 and you are forced to leave your current place, start looking at the market now. Some states (like Louisiana) have strict zoning restrictions which prevent kids from attending schools outside the current zone. Will your kids be impacted now if you can’t afford your current market?

3.      Create a soft landing – Deviate slightly from your current financial goals by saving as if this was actually going to happen. You may have to save for the initial deposit or to pay for the difference in rent or mortgage you wouldn’t be able to cover if the cut happens. Either way, starting or increasing your emergency savings account is a great idea.

If you read the US Naval Institute’s article, it describes in-depth examination described this cut as “regressive, discriminatory and costly.” The best thing to do is to prepare now so you aren’t caught by surprise if this cut makes it into the FY16 NDAA.

Monday, July 6, 2015

Ready to Become a Military Millionaire

Most of my blog posts are written for people just starting out on their path to financial independence. I focus on that demographic because I feel most people in the military that may read my blog are probably just starting or have a surface-level knowledge base of personal finances. This blog post however, is for people already financially secure and who are ready to turn it up a notch. This post is for those aspiring to become military millionaires.

  • Ditch the “all cash” emergency savings. This first step is in direct contradiction with what I tell 95% of the people I help. I always recommend people have easy access to cash for emergencies. An emergency savings account is extremely important for people just starting out because it will shield them from unexpected expenses that may derail their financial success. Having an “all cash” emergency savings account isn’t as important for those that are higher ranking, have almost no real debt and have excellent credit. For these people, they should invest their money in conservative to moderate-conservative investments. For me, it takes less than 3 days to sell mutual funds and transfer the cash. Right now, I have cash only in my short-term goal account and it only earns a .75% interest rate (that’s less than 1%). People looking to become wealthy need to maximize their returns at all times and having a significant cash withhold can hamper those returns.
  • Debt is not a bad thing. Think big. For people with low financial knowledge and for the majority of America, debt is the new slavery. We are enslaved to consumerism and the banks own all of our debt. We have no assets to claim for that debt; i.e. college loans and credit cards. This is simply our slavery to banks and insurance companies. For people with high financial knowledge, debt is simply a tool. They have assets to claim for that debt and ensure they always have equity in that debt. Real estate, smart auto purchases, margin investment accounts and business loans are types of leverage where people earn more money than it costs to owe the money. For example, purchasing a home creates a large “debt” but is also a large “asset.” In the military, if we don’t invest our BAH, then we lose it. Going into “debt” with a home loan allows us to reap the BAH benefit. I spend most of my time helping people dig their way out of consumer debt and I wish I could spend more time helping people with their leverage.
  • Promote, save, retire, work, save and retire. This is a model most people in the military talk about but rarely execute correctly. Whether you enlisted or commissioned right away, the goal is to promote quickly. For commissioned officers, you need to complete all the things you have control over; right positions, professional certifications, Master’s degree and PME. For enlisted, study for each rank and focus on making the next rank. I made E-4 early, E-5 first time but then took 4 times to make E-6 before crossing over to the dark side in becoming a commissioned officer. This represents a large loss of income as I tried to focus on my degree. While in the military you should save as much as you can in your IRAs, TSPs, real estate and taxable accounts. Then when you retire from the military, some people as early as 37/38, get another job, save all your money and retire from that job; again, some people as early as 45-55. It doesn’t matter if you transition to civil service or corporate life. A lot of people don’t calculate their military retirement correctly and then find out they don’t have sufficient money to actually retire. Remember, our military retirement is only 50-75% of our base pay and doesn’t include COLA, BAH or BAS. For my current location, my retirement would only be 35% of my current paycheck.
  • Get another job. Even with excellent investment returns our pay doesn’t make it easy to become a millionaire in 20-30 years. After raising a family and normal expenses, we simply don’t make enough to put away a million dollars. Most people get another job or position their spouse to launch a successful company. I know friends who’ve opened their own business and after years of hard work have eclipsed their own military paychecks making retiring from the military an easy transition.

Unless you’re in an excellent financial position, I wouldn’t follow this advice. For most people, following “vanilla” advice will help secure a good financial position. This blog post is for people ready to invest and have the ability to position them to become military millionaires.