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.

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.

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.  

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.

The Federal Budget and You

The Federal Budget is comprised of four components: 1) Tax Revenue (or Receipts) 2) Spending (or Outlays) 3) the difference between the two known as a Surplus or a Deficit and 4) The National Debt.  You are part of all four and here is how each one affects you on a daily basis.

• Taxes - The top three sources of income for the government is the Income Tax, Social Security Tax and the Corporate Income Tax.  Your attitude towards these taxes depends on your political ideologies.  But for financial planning purposes your goal should be to minimize the taxes you pay.  One of the advantages of a being a military member is that only your Base Pay is taxed; our BAS, BAH, deployment and travel entitlements are not taxed.  Another way to minimize taxes is to contribute to a Traditional or ROTH Thrift Savings Plan (TSP) and/or an Individual Retirement Account (IRA).  For the difference between the two, please read my article here: Should I Invest in Traditional or ROTH TSP?  In fact, every decision you make should be to pay the least amount of taxes throughout your lifetime to maximize your earnings.  Each year the government spends more than it gets in tax revenue, which increases our national debt, and we can assume that your income taxes will go up in the next 1-50 years so you need to do what you can to take advantage of today's tax rates. 

• Spending - The top four sources of spending in order or most amount spent is Department of Health and Human Services (includes Medicare/Medicaid), the Social Security Administration, the Department of Defense, and the Interest on our National Debt.  Again, your attitude on the importance you place on the different reasons for spending depends on your political ideologies.  But one thing in common is that both main political parties have been/are increasing the size of the government.  This increased spending compared to tax revenue generates a National Deficit (often confused with the National Debt).

• Surplus/Deficit - The difference between Spending and Revenue is what generates a Deficit or Surplus condition.  It's common knowledge that the U.S. Government has ran a Deficit almost every fiscal year (1 Oct - 30 Sep) for several Presidential terms.  At the end of the fiscal year the Deficit is added to our National Debt.

• National Debt - The National Debt has become a common discussion and worry for our current generation.  Large National Debts that become unsustainable have been one of the causes of civilization collapses since the Roman Times.  The interest on the national debt is the fourth largest expenditure for the federal government.  If our financial uncertainty becomes worse, the interest rate at which we pay for the National Debt will go up and every dollar we pay on the national debt is either one dollar that can be returned to a taxpayer or the federal government can spend elsewhere.

You are a taxpayer and are critical to these four components.  The only way to stop generating a Deficit is to cut spending or raise taxes.  Over the last two decades it seems that only increasing taxes has been approved and thus we all face higher taxes in the future if spending can't be cut.  It is important to see your role in this process and watch it carefully because it directly impacts your personal finances. (Q99VSR8GSWXG)

How to Set and Complete Financial Goals: Work in Reverse

A lot of people have difficulties setting goals and then completing them.  I read a lot of biographies and self-improvement books as well as practice this theory myself and I think one of the best ways to set and complete goals is to work in reverse.  Think about 60 years from now or think about your obituary (seems a little morbid right?) and then set goals of what and where, financially or otherwise, you want to be at that point.  Once you’ve done that, then work in reverse on what you need to do to get to that point and then start completing each task in order to get to your goals.  Instead of just preaching about, I will let you know mine goals; letting people know about my personal life is something I rarely do.  My goal at 60 or when I pass away is to build a multi-headed Empire.  I want to own everything.  So here is each task, how I plan to get there and where I’m at now.  The goals are incredibly high, so if I miss a mark I still hope to achieve major success.

· Hedge Fund Manager – I would like to retire as a hedge fund manager.  I want to own so many investments, including all possible types of assets, that I can affect political policy, change corporate strategies.  I want to own stocks, bonds, gold, art, real estate, land, etc.  To get to that point I have to have displayed success with my own portfolio, once I retire from the Air Force, I will have to work up the corporate ladder and then sell myself to potential investors.  I’m currently an Air Force Finance Officer and plan to get my CPA, Accounting Certification, or the required mutual fund/stockbroker licenses.

· Real Estate Empire – I want to own several properties and land in several cities in several states.  My goal is to be a major player in America’s real estate future.  At 31, I’m starting late in the game, but my wife and I plan to purchase our first house when we PCS to Barksdale AFB, Louisiana.  I will have to keep purchasing homes at the right time, taking advantage of the greed-to-fear cycles American continuously has.  To have a real estate empire, I’m going to have to learn a lot about multi-property management and ensure I balance the risk-to-reward ration that I’ve been comfortable with.

· Media Empire – A person’s relevancy is increasingly becoming more dependent on his or her success on social media.  I DO NOT want to be famous at all.  I would like a large following of people who share my values and/or want to learn from my mistakes and successes.  I want to educate people on what I believe (some may call it brainwashing) through normal media, social media and fictional novels.  Frequency and persistence is the key to success in forming a solid following.  Currently, I have this blog, Military Finance Report, that I try to spread around.  I’m frequently offer financial advice and discuss politics on my personal Facebook page.  Lastly, I self-published my own fictional novel called Blood Flows Like Wine, that I’m currently re-writing.  I hope to make a series out of it called, The Vampire Wealth Chronicles, and is a covert and overt attempt at pushing my ideological beliefs through fictional Vampire novel.  Check out the books Facebook page at www.facebook.com/vampirewealthchronicles and the Twitter page @vwcbooks.  You can purchase it on Amazon here: http://www.amazon.com/dp/ASIN/B00AEFFHRW or on Smashwords here: https://www.smashwords.com/books/view/300393.

This is just a small sampling of what my future goals are.  As you can see, I set the main goal in the future, then I identify all the milestones needed to execute each one and then I start completing each milestone.  I continuously review them and check my progress and adjust as needed.  Your goals can have shorter time horizons or not be as grandiose.

Government Shutdown Lessons Learned

I have refrained from publishing my personal opinion on the Government Shutdown, what led to it and who is to blame, but I thought it was necessary to publish some lessons learned from it and how it impacts your personal finances.

· Emergency Savings - I joined the military because of the "security" and the "guaranteed paycheck", among other benefits.  This is no longer a benefit and the security of our pay has been affected by Sequestration, the Government Shutdown and we'll see from here.  It is required by law that military members must be paid for services completed; however, there is no law that states when we must be paid.  Luckily for us, Congress passed the Preservation of Military Pay Act to ensure we got paid.  For this reason, having an emergency savings available would help alleviate any short-term disruptions to your pay.  If our pay was delayed for a long time, you could rely on this emergency savings.  Having an emergency savings account is usually the top of any personal finance recommendations.

· Tuition Assistance (TA) – If you’ve been waiting for the “right time” to start college, then you may miss the opportunity to take advantage of 100% TA, or no TA with the current Government Shutdown.  Decreased budgets, Sequestration and the Shutdown have all proven that TA is an expense that will be continuously looked to reduce or get rid of.  During a Chief of Staff of the Air Force Visit recently, he told our base that there are strong discussions that will most likely to reduce TA to 75%.  That means you will have to pay the remainder or use some of your applicable GI Bill.  Bottom Line: You should start taking advantage of the college benefits now before this benefit goes away.

· Separating/Retiring from the Military – Ensure that if you are planning on separating or retiring from the military that you’ve done considerable planning ahead.  Make sure you aren’t making the decisions based off of one bad assignment.  Civil Servants are an extremely valuable part of our Military’s total team and have provided the continuity while the military was engaged in Iraq and Afghanistan but as the wars wind down and we get into worse financial constraints, our civilian personnel will be primary targets for reductions.  Sequestration and the Government Shutdown has shown that hiring freezes, furloughs, reductions in annual price index raises and other entitlements are top tools for budget reductions.