02-27-2017 07:30 AM
Content provided courtesy of USAA.
By Ingrid Bruns
What are you saving for? A wedding, a new baby, college, a down payment on a house? How will you pay for an emergency when “Murphy” shows up at the door? Have you been thinking about saving but just haven’t taken the plunge?
Many of us know the feeling. We want to buy a big-ticket item, take a trip, or handle a financial emergency, but we don’t have the cash.
A dedicated savings plan can help, and there’s no better time to start one than this week. Military Saves Week offers service members and their families a chance to assess their preparedness for the future. We’ve heard the mantra: “Financial readiness is critical to mission readiness” — but it all starts with a plan.
- Start early. Do it today. Procrastination is not your friend.
- Start small. Even the pyramids of Egypt were built one brick at a time. With little tweaks in the way you use your money, you can be well on your way to meeting or even exceeding your savings goals.
- Stay committed. Pay yourself first out of every paycheck. Consider saving automatically; that way, you don’t have to remember each pay period, and you’re not tempted to skip deposits.
Strive to save 10-15% of your gross pay. If that figure feels unrealistic, start with whatever amount you can, and increase your contribution with every promotion and bonus. To keep you from depending on a high-interest-rate credit card, stock an emergency fund with at least $1,000 for unexpected expenses. Ultimately, strive to keep 3 to 6 months’ worth of basic living expenses in your emergency fund.
For military families, two critical times require additional money:
- Permanent Change of Station: As you prepare for your next PCS, set aside at least $1,000 in a PCS fund to cover out-of-pocket moving expenses. If you are moving overseas, moving with a pet, or have large items like a boat or RV, be prepared with up to $3,000 in cash. Treat your PCS fund as separate and exclusive from your emergency fund.
- Leaving the Military: Transitioning to civilian life can be hard enough; don’t make it any harder by leaving yourself defenseless in the face of a potential delay in income or other emergency. Start saving at least two years from your separation date, or as early as possible, in order to give yourself plenty of time to build up your savings. Having additional funds set aside can provide some runway for you to find the “right” job, rather than feeling pressure to take the first job that comes along.
Our family has two kids in college, a mortgage, car loan and the typical household expenses. Finding extra cash to sock away can be a real challenge — but is critical as my husband approaches military retirement this year. We used the USAA Goals Planning Tool to figure out how much we need to save each month. We then opened a separate savings account and linked it to the goals tool so we can track our progress. To secure our success, we set up an automatic allotment from every paycheck to ensure paying ourselves always comes first.
We also take advantage of some of the silver linings of our military life. During this current deployment, we saved money in the Savings Deposit Program (SDP) and are realizing a 10% APR — no other savings vehicle can currently guarantee a return that high. We are also maximizing the temporary increase in pay due to special deployment allowances and tax-free combat pay to plump up our savings plan.
Saving for a specific short-term goal is an excellent way to work toward saving for the major expenses in life, like buying a house, putting kids through college and eventually being able to retire in comfort.
As you watch your balance grow, you’ll forget those times you passed up short-term gratification to fund your savings. Instead, you’ll focus on how much wealth you built and how much closer you are to your goals.