2019-03-01 / Viewpoint

Common money mistakes that hurt

Courtesy of USAA

Joining the military opens a wide world of opportunities. Those first years in the service can put your budget through grueling tests. Pitfalls wait around every corner, and too many wrong moves could do irreparable damage to your financial future. “Most new recruits are young, don’t have money to burn and have relatively little experience managing their own finances,” said Glenda Oakley, a USAA employee and former Army platoon leader who has seen their financial challenges firsthand, both on base and through 15 months in Iraq. “I tried to help my Soldiers understand that the decisions they make now will stay with them their entire lives.”

Oakley and USAA Certified Financial Planner J.J. Montanaro identified 10 money missteps that all new recruits and junior enlisted personnel should try to avoid.

1. Failing to budget

“It’s critical to live within your means,” said Montanaro. “That requires sitting down and separating the things you want from the things you really need.” Oakley suggests setting aside a reasonable amount of “play money” at the start of every month and using it to pay for non-essentials like entertainment or eating out. There’s only one rule: “When it’s gone, it’s gone,” she said. Another important budgeting decision relates to where you live. Many junior enlisted want the freedom of living off-post, but it can be much more expensive than the low-cost housing and amenities available on base.

2. Buying too much car

It falls into the budgeting discussion, but springing for a new ride is so common among new recruits, it deserves a separate mention. While it may not impress your friends, a new economy car or a sensible used car can help you stay on solid financial footing. Also, said Oakley, remember that you’re buying more than a car. Shop around for your auto loan and insurance to make sure you’re getting competitive rates. And don’t be afraid to ask a noncommissioned officer for advice. “They’re there to help,” she said.

3. Putting off retirement savings

For anyone starting their career, retirement seems like a lifetime away. Taking advantage of the military’s Thrift Savings Plan from the beginning could make it easier to build a nest egg for later. “Even small contributions every month can start to add up over time,” said Montanaro. If you’re deployed to a combat zone, don’t overlook the Savings Deposit Program, a savings account that pays a 10 percent interest rate.

4. Blowing your bonus

Enlistment bonuses and other special pay just scream to be spent on a bigger TV or a new tattoo. But chances are you can think of a more responsible use of that money. One of these days, you’ll thank yourself for paying off debts or setting aside a rainy-day fund.

5. Spending money you don’t have

The “I want it now” mindset is dangerous when you don’t have the cash to pay upfront. Putting purchases on credit cards or taking out a payday loan can bite you in the form of high fees, interest charges and mounting debt. “Credit cards shouldn’t be used to supplement your income,” said Oakley. “If you do use them, pay them off quickly before the balance keeps growing.”

6. Thinking short-term

Learn to separate a good deal from a dud by looking at the total costs involved. Rent-to-own furniture stores or promises of “no payments until 2021” might tempt you with low initial costs, but can nickel-and-dime your budget to death if you don’t adhere to strict payment policies. As with any major purchase, if a deal seems too good to be true, it probably is.

7. Not protecting your property

Even if you don’t own a home, you likely have possessions (furniture, electronics and more) worth thousands of dollars, especially if you live off-post in an apartment. “A lot of people are under the impression that their landlord covers their belongings if there’s a fire or a flood, but that’s not the case,” said Montanaro. “An inexpensive renters insurance policy can help protect you from financial disaster if you have to replace everything you own.”

8. Ignoring your credit report

Once per year, get your free credit report at annualcreditreport.com. The report details your history of borrowing money and making payments on time. Correcting any errors could save you money by helping you qualify for lower interest rates on loans or get approved for affordable housing. If you’ve had a troubled history of managing debt, now is the time to change your ways and improve your credit.

9. Opting out of life insurance

As a military member, you are enrolled in Servicemembers Group Life Insurance (SGLI) unless you opt out. For young members without a family to support, saving some money by forgoing life insurance might seem like a good idea. But Montanaro said to think carefully before taking that route. “Even if you don’t need life insurance right now, keeping it can have benefits later on. If you interrupt your coverage, you could have trouble qualifying in the future, especially if you have a medical condition.”

10. Flying without a parachute

Life is full of surprises, and they’re not always good. A broken washing machine or a medical emergency could set you back hundreds or thousands of dollars. If you have no choice but to pay with credit cards, the expense could haunt you for years. A better way is to plan for these setbacks in advance, and set aside a financial cushion. Contributing a small amount to your emergency fund every month can add up quickly and help to ease the blow when trouble comes.

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