In my last column, I highlighted the new Military Financial Wellbeing Index, which offered insights into how service members and their families coped financially, from before the pandemic through the end of 2023. Now I'm shifting gears to a set of actionable ideas derived specifically from my take on the index.
1. Earmark Your Emergency Savings
According to the index, published by USAA, this is a strength of military households. Across the board, the data showed an increase in both their savings and checking balances. The importance of having a robust emergency fund cannot be overstated. An emergency fund provides a cushion and flexibility in the event that something bad happens. For example, over the past couple of years, I've talked with a lot of folks who have increased their property insurance deductibles as a means to cope with industry-wide rising premiums. That could make sense, but in my mind, only if you have the money set aside to pay those deductibles.
My point is simply that having savings is good, but having savings specifically for emergencies or the unexpected is critical. So while we have seen increasing balances, make sure that yours, or part of it, is earmarked specifically "for use in case of emergency." I've always found that having a separate account, perhaps even at a separate institution, works well to make this happen.
2. Conquer Debt Strategically
For me, a big takeaway from the index was that military families were, on a relative basis, managing their debt well. However, a big chunk of military members -- 37% -- still regularly carry credit-card balances from month to month. With the average credit-card balance carrying an interest rate well over 20%, it's important to tackle your debt with a focused plan. The debt snowball method -- paying off the smallest balances first -- can provide quick wins, while the avalanche method -- targeting the highest interest rates -- saves money paid on interest over time. If you have pre-service debt that is eligible, take advantage of the Servicemembers Civil Relief Act (SCRA), which can lower interest rates on certain pre-service debts. An on-installation accredited financial counselor or one associated with the National Foundation for Credit Counseling can help you get strategic with your plan to pay off high-interest debt.
3. Boost Retirement Savings
At this time of year, I like to highlight the importance of compound returns. The old saying, "Little by little, a little becomes a lot" is spot-on. I'm at the back end of my career, and never have I been more aware of how all those little steps, decisions and commitments can have a huge impact. I say that because the magic of compounding really becomes apparent in the later years of your savings journey. My point? Take 1%-3% of that January pay raise and use it to boost your contribution to the Thrift Savings Plan, and that could translate to thousands of dollars of flexibility and options in your future. To illustrate the point, let's say a 24-year-old E-5 with six years of service allocated half of their 2025 January pay raise to the TSP. That equates to roughly $80 per month. Fast-forward 40 years with an average 8% return, and that small decision and the power of compounding would equate to more than $250,000!
4. Be Deliberate
One of the not-so-surprising findings from the index is that the rising cost of housing is a pain point for service members everywhere. The Basic Allowance for Housing is invaluable, but it's essential to budget wisely and make housing decisions in the context of your situation and the market. I say "situation," which includes your financial situation, but also your career situation. Avoid the temptation to stretch your budget to buy a home that you just hope your career (i.e., your next permanent change of station, or PCS) will accommodate. Instead, aim to rent or take advantage of privatized housing until you can afford to buy a home for the long haul -- whether you are living in it or have, by choice or necessity, become a long-distance landlord.
5. Enhance Financial Literacy
Financial education is key to making informed decisions. Formal educational programs at all levels, the Department of Defense's Financial Readiness Program and organizations such as the USAA Educational Foundation or USAA's Financial Advice Center can help service members sharpen their financial skills. Encourage your family to participate in these learning opportunities as well.
I'll be excited to see the follow-on versions of the Military Financial Wellbeing Index. I'm sure your efforts as individuals and military families will ensure the trend is onward and upward. Good luck.
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