Military Spouses: Ensuring Financial Readiness on the Homefront
By Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy
While military readiness may be in the forefront of your spouse’s mind, you are the one likely responsible for financial readiness on the homefront, particularly during deployment. It’s important to make sure you are armed and ready to provide your family with a strong financial plan for the future.
Being a part of the military family allows you to have a broad network to turn to for all kinds of assistance. Think of the SEC’s Office of Investor Education and Advocacy and Investor.gov as a part of that network that can assist you with your savings and investing plans. The best part is that wherever your next duty station is, you can access our free investor education tools and resources at Investor.gov, including our military page.
As any service member can attest, every successful mission starts with a good military operation plan. As the family’s chief financial officer, you can get started right away with developing a plan by checking out our Financial Readiness Saving and Investing for Military Personnel brochure. The brochure will provide you with basic training tips on how to invest wisely and avoid fraud.
There are essentially three keys to financial success:
- Make a financial plan
- Pay off any high interest debts
- Start saving and investing as soon as you have paid off your debts and take advantage of the Thrift Savings Plan (TSP)
Financial Plan 101
Get started now! A good financial plan considers everything you want to save or invest for, such as buying a house, setting up a college fund for your children, providing for your retirement, or saving for life’s unexpected expenses. Talk with your spouse about your shared goals and create a plan that accounts for all of it. Put together a budget so you can track all of your expenses. Try to live below your means to make room in the budget for saving and investing.
The Plastic Problem
Once you have established a financial plan, you should pay off your credit cards or any other high interest debt. We all know there are certain times when paying with a credit card makes sense. And there are benefits. Who doesn’t want airline miles or hotel points to help get you to your dream vacation? However, you should only use credit cards if you can keep your debt manageable and are able to pay off the balance each month. Odds are that the interest you are paying on credit cards or other debt will be significantly higher than any return you could receive on an investment. Keep in mind that missed payments reflect poorly on your credit score, something that can hurt you down the road when you’re trying to get a loan for a car or home, and it could even imperil an active-duty service member’s security clearance.
Save or Invest? Both!
Save –You can use the SEC’s Savings Goal Calculator to see how much you need to save each month to meet your goals. A general rule of thumb is to have at least three months of savings ready and available if you need to dip into it for emergencies. When you save, you’re likely putting money away in a safe and accessible place, such as a savings or checking account or CDs (certificates of deposits). While it’s important to put your savings in these kinds of accounts, expect lower returns. That’s okay because investing is the place that allows you to try to make your money grow.
Invest – When investing, you have a chance of losing your money. All investments have some degree of risk so you have to be comfortable with the amount of risk involved with the products you pick. Choosing a mix of investments will help limit your losses, so consider diversified investments like the TSP Lifecycle Funds to ensure you don’t have all of your investment “eggs” in one basket. If you plan to work with an investment professional, be sure to do a background check before sending your money. It’s easy to do. Just go to Investor.gov.
Take Advantage of the TSP – The TSP is the federal government’s version of a 401(k) and one of the best options for investing for retirement a service member has. Contributions are automatically deducted from the service member’s pay and provide tax advantages either today (traditional) or in the future (Roth). TSP offers fees that are much lower than even the average index fund. The TSP website (TSP.gov) explains the benefits available to the military. Service members sign up for TSP using MyPay.
Avoid Fraud – As you consider investment options, stay away from opportunities that sound “too good to be true.” There are all kinds of investment fraud out there and so-called “investment professionals” often use slick sales pitches, promise huge returns and try to pressure you to buy right away in order to get your business. These are all red flags that should set off alarms.
Plan for the Long Haul
While retirement may seem far away, it’s important to understand how your spouse’s retirement plan–either the Legacy or Uniformed Services Retirement System or the Blended Retirement System–ties into your long-term savings goal. The Legacy System is a pension plan where if your spouse serves 20 or more years, he/she will receive a lifetime monthly annuity determined by years of service and the average of the highest three years of basic pay. The Blended System is a combination of a retirement annuity for those who serve 20 or more years combined with employer contributions to the TSP.
As a military spouse you handle so many major responsibilities at home every day while your spouse is serving our country. By going to Investor.gov before you invest, and taking time to learn how to invest wisely and avoid fraud, you and your family will be financially ready on the homefront.
Thank you for your service.
The Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This article expresses the author’s views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff.