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3 Financial Habits to Start the New Year off Right
by Ashley Feinstein, Financial Writer

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The start of a new year is a very exciting and pivotal time. We tend to reflect on what we accomplished and experienced in the last year and then get to decide what we want to achieve in the year ahead. It’s a time for dreaming, goal-setting and creating new habits. One area in particular where we often seek to improve our habits is in our financial lives. While financial wellness is a large component of our overall wellness, it’s even more important when in a time of transition. These three financial habits will help you start the year off right by helping you build a secure foundation, increase your peace of mind and stay on track for your biggest savings goals.


1. Create and Adjust Your Civilian Budget
I believe everything starts with a good old-fashioned budget. We have to understand what money is coming in and what expenses are going out before we can create a sustainable financial life. When transitioning from the military, putting together a civilian budget is even more important because the military has provided many benefits that will no longer be available to you. It’s important to account for these extra expenses. Two of the most significant changes will probably be housing and tax costs. You will want to do some research and estimate housing costs in the location where you plan to live so you can budget accordingly. You will no longer receive tax-free housing benefits.

There are certain mortgage benefits available to those transitioning from the military. For more detail on those benefits and to see if you qualify, visit http://www.benefits.va.gov/homeloans. You will also want to incorporate any other tax changes into your civilian budget. Not only will you be using post-tax dollars for housing, you will now also be subject to state income tax, which will vary depending on which state you live in.

Putting together a draft or first cut of your civilian budget is a great start, but I find that it typically takes about three months of refining and adjusting before you have a realistic and comprehensive budget. I recommend keeping a money or spending journal once you transition to track what you’re actually spending in your new lifestyle. It can be very eye opening because most of us don’t spend what we think we spend. Once you have your money journal as a reference, you can adjust your budget accordingly. You can make a habit of revisiting your civilian budget anytime you experience a significant change in your income or expenses.


2. Check in on Future Goals
You might be saving for a down-payment on a home or a car, putting away money for your children’s education, or planning for retirement. With your comprehensive and accurate civilian budget you can now look to these big financial savings goals to figure out how and by when you will achieve them. For example, if you need $20,000 for a down-payment and are able to save $5,000 a year after your expenses, you will achieve your goal in four years. If you want to achieve your goals more quickly than your current budget allows, go in and adjust it. What can you cut or get for a lower cost? Are there any items that aren’t adding much value to your or your family’s lives? Cut them out. Make it a habit to check in on your goals every quarter to stay on track with your plans.

Retirement is another important savings goal for many transitioning military members. After your transition, you’ll want to get in the habit of contributing to your retirement savings and may want to participate in your new employer’s retirement program. 401(k) plans are common as far as company-sponsored programs go, and there are two major types to consider:
Traditional 401(k): Contributions are pre-tax from your salary and lower your taxable income. These contributions, in addition to any employer match, will grow tax-deferred and then distributions are taxed in retirement.
Roth 401(k): Contributions are after-tax from your salary. Neither investment earnings nor distributions are taxed in retirement.

Find out if your employer offers a 401(k) matching program and, if so, make sure to maximize it! Your employer will contribute to your 401(k) to match what you contributed up to a certain percentage. This scenario, courtesy of Wikipedia, serves to illustrate a “100% of the first 6%” scenario:

“For example, an employee whose annual gross pay is $50,000 contributes $3,000 (6% of gross pay) would receive a $3,000 employer contribution. If the employee contributed more than $3,000 the employee would not receive additional employer contributions. If the employee only contributed $2,000 (4% of gross pay), they would only receive a $2,000 employer contribution leaving $1,000 of potential employer contribution on the table.”

As always, you should check with your civilian employer’s benefits department regarding the specifics of that company’s particular matching plan.

If you qualify, you can also contribute to a traditional or Roth IRA to boost your tax-advantaged retirement savings even further or in place of a company-sponsored 401(k) program. If your company offers a defined-benefit plan or pension, make sure to understand your eligibility and the vesting options. If you leave before your options fully vest, you will most likely not receive full payments in retirement. Make a habit of checking in with retirement planning calculators every six months or so to confirm that you are contributing enough on an annual basis to reach your retirement goals and will continue to create a sustainable financial life.


3. Plan for the Unexpected
One of the greatest things we can do for our financial health is to plan for the unexpected. While we can never anticipate the personal and financial ramifications of emergencies or loss, we can put plans and safeguards in place to make them as manageable as possible.

The first way to do this is by creating a transition fund that will later become an emergency fund. A transition fund is 3-12 months of living expenses that provides financial protection for any lapses in work or emergencies that may come up as you transition. Once you are comfortably transitioned, the 3-12 months of expenses will serve as an emergency fund to protect you and your family in case of any emergencies that may come up. Make sure to keep these funds in an easy-to-access, liquid vehicle such as a money market fund or a high-interest savings account. You want to be able to access this money in a pinch without incurring any penalties or fees.

When coming up with your transition fund, make sure to factor any moving expenses that you will incur into your calculation. For most service members, leaving the military is an authorized government expense. Allowances and benefits vary by service branch, type of discharge and type of separation, but you may be eligible for various benefits. If you don’t have enough savings to cover 3-12 months of living expenses, use your new civilian budget to start saving for your transition fund each month or paycheck. Have the allotted money set up to transfer automatically into your savings or money market account so you can see it grow toward your goal transition fund amount.

When it comes to larger life emergencies, such as your and your family’s health and protecting your children, you will want to consider various insurance options. While on active duty, the military offers a maximum of $400,000 Servicemembers’ Group Life Insurance with an additional $100,000 option available for spouses. Note that your Servicemembers’ Group Life Insurance will expire 240 days after you leave the military, so plan accordingly. Your new employer may offer a life insurance plan, but make sure to understand what you’re receiving with the plan and that it’s enough for your family’s needs. Supplemental life insurance may be a good option. You also have the option to convert your Servicemembers’ Group Life Insurance policy to a Veterans’ Group Life Insurance (VGLI) policy, but premiums will increase over time. Make sure to compare prices and coverage before committing to any life insurance plan or combination of plans.

In addition to life insurance, you will also want to protect you and your family with health insurance. Just like with life insurance, review your options and compare prices before making a decision to commit to a plan. If neither you or your spouse have employers that offer health insurance coverage right away, consider signing up for the Continued Health Care Benefit Program (CHCBP), which provides up to 18 months of insurance after your transition. Don’t forget to account for health-related expenses in your civilian budget despite having health insurance. You may now be responsible for paying policy premiums, co-payments and deductibles. Many employers offer a health savings account (HSA) benefit or flexible spending account (FSA) where you can contribute tax-free money to cover health-related expenses. Estimate your medical expenses for the year and contribute that amount to the plan to maximize the tax benefit. Maximize your healthcare benefits where possible.

Once you have these plans for the unexpected set up, you will want to monitor and check in with them on a regular basis. Make it a habit to revisit your life and health insurance plans each month to make sure your needs haven’t changed and that there are no significant changes to the policies.

Ashley Feinstein is a certified money coach and founder of Knowing Your Worth, where she empowers her clients to redefine success on their own terms by knowing their value and fearlessly going for it. Find out more, check out her blog at KnowingYourWorth.com and connect with her on Facebook and Twitter at The Fiscal Femme.


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