Financial Education

From Pioneer Lending

Tips to save money
For military families, knowing how to manage finances is critical due to the effects of long-term deployments, more restrictive pay scales, and the nature of military life. When a struggling economy is added on top of these issues, it can be difficult for military families to find extra money for savings, or even to pay bills.

The following tips can help military families take control of their finances, save money, and start down the road toward financial independence.

Set Goals
The first step is to figure out where you want to be financially next month, next year, or in 20 years. Some questions to consider include: Do I have an emergency savings account? Do I need a new car soon? Do I want to buy a house? Am I saving enough for retirement?

How you answer these questions will determine how you will handle the remaining steps. For example, if you want to retire early, then you will need to budget for additional contributions to a retirement account. Those increased contributions will then affect how much you spend on other items in your budget, which will have a continuing “trickle down” effect on the rest of your spending.

Once you have an idea of your financial goals, you can use them as a baseline for the rest of your financial plan.

Create a budget
The key part of a budget isn't just making one. It's having the discipline to stick to it.

The key is to be realistic—don't over or underestimate your income or expenses, and be sure to include every regular expense, including those you pay annually, biannually, or quarterly (such as auto insurance, which is usually billed twice a year but for which you can save monthly).

Just having your spending information in front of you can be a real eye-opener and show you where you're wasting money, and where you can add a bit more.

Pay yourself first
When making your budget, ensure that you pay yourself first. The idea is to find ways to put money aside for your future before handing it over to someone else. There are two good ways to do so.

• The Thrift Savings Plan (TSP)—While retirement may seem far away, or not an important expense if money is tight, contributing to the TSP has several advantages. It reduces the amount of taxable income you have since the money is taken out before taxes; takes advantage of compounding interest so you will have more money later; and can help ensure you don't have to work into your golden years.

• Set up an emergency savings account—Unexpected bills can completely wreck a budget, so having money set aside can keep you from having to put, for example, car repairs on a credit card. Set aside enough money for you to have $500 to two-month take-home pay for such unplanned expenses.

Save on insurance
There are a few ways you can save money on all types of insurance products:

• Shop around—The difference in costs between companies can vary dramatically, so either go to a site that offers quotes from several companies, or call around to see who has the best rates.
• Increase deductibles—Simply going from a $500 to a $1,000 deductible can reduce your payments significantly. The one thing to remember, though, is to keep it at a level you can afford should you need to file a claim.
• Use the same company—Almost all insurance companies offer discounts to those who have multiple policies with them (e.g. auto and home insurance), so keep that in mind when getting quotes.

Cut the extras
Small purchases here and there may not seem like much, but they add up over time:

• A $2 coffee five times a week adds up to $480 a year
• Eating lunch at a fast food place twice a week is nearly $700 a year
• A $30 meal at a restaurant once a week is more than $1,500 a year

Look through your budget, find out how many of these smaller expenses you have, and find a way to eliminate them or replace them with something less expensive. For instance, making your own coffee still gets you the caffeine (and even the taste) you want, but without the cost of a fancy coffee shop.

Keep tabs on your credit report
Your credit history shapes a great deal of your life: the interest rate you receive on a loan or credit card, your insurance premiums, even your security clearance. Having a poor credit history will cause you to pay more in fees, interest, and perhaps lost income.

Check your credit report at least once a year at www.annualcreditreport.com. Note that this is the only site legally able to give you free copies! There are other sites that claim to be able to do so, but they have been noted for fraud and charging you a fee.

Once you get your copy, dispute any accounts that aren't yours, as well as negative items more than seven years old (10 years if you have filed bankruptcy). Then keep track of it each and every year to make sure it's accurate.

Break the debt cycle
Debt is a fact of American life, but far too often people get in far too deep. Whether it's making minimum payments on your credit cards, or taking your valuables to a pawnshop, being mired in debt can be both emotionally daunting and fiscally dangerous.

If you have too much debt already, some sort of debt consolidation loan can be an effective solution. In some cases, the monthly payment may be more than a minimum credit card payment, but remember that the loan will be paid off in a matter of months, whereas a credit card can take years to pay in full.

Before taking on any type of debt, however, make sure it is necessary and, if so, how much you actually need. One way to think about your family's debt is to set a threshold—for example, make sure your debt ratio is no more than 40 percent (all debts divided by take home pay). The key is to know how much debt is reasonable and set a plan to give yourself a better chance of making the payments you need to remain financially secure.

Now get started!
While each of these tips can move you closer to financial independence and prepare you for your specific financial goals, none of them will matter if you don't put them into action!

Just remember that if you are having financial problems, you probably didn't get in them overnight. It will take time, a period of adjustment, and a true commitment to making a change in order to fix the problems. But just like anything worthwhile, it will all be time well spent.

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