Whether it's the financial guru on TV or your well-intentioned father-in-law, everyone seems to have a foolproof trick that will fix your finances. Unfortunately, a single trick or tactic isn't enough. A well-balanced financial plan depends on a three-pronged strategy: managing your wealth (savings), managing your risk (insurance), and managing your cash (budgeting). Learning to focus your energy on these three areas will provide you and your family with peace of mind and get you started on the path to financial security.
Strategy 1: Manage Your Retirement Savings
No one has ever complained about having saved too much money for retirement. So, whatever you’re saving now, save more. As a member of the armed services, you can contribute a portion of your pay to your Thrift Savings Plan (TSP), a 401(k)-style defined contribution plan. Although the amount you contribute will vary depending on your situation (this handy calculator determines your maximum contribution for this year), you should be contributing a set amount every month. Set up an automatic payroll deduction today to take the guesswork out of regularly saving for retirement and be sure to talk to a Financial Advisor to make sure you’re on the path to meeting your retirement goals.
Strategy 2: Manage Your Risk
Risk management involves taking steps to avoid or minimize the financial damage caused by certain risks. This is most often achieved through balanced insurance coverage. We’ll use life insurance as an example. As an active-duty service member, you’re eligible for up to $400,000 in benefits under the government’s Service members’ Group Life Insurance (SGLI), with the option to add spousal and/or dependent coverage. Many service members opt to supplement their SGLI coverage with commercial policies, which allows them to increase their overall coverage now and provide longer-term protection for their post-military lives.
Risk management should also include mindful protection of your car, health, personal assets, and home, as well as permanent needs (like income and estate planning) and temporary needs (like mortgage, college, and debt). However, covering your risk should not come at the expense of saving for retirement. Work with an insurance professional to ensure you have balanced coverage.
Strategy3: Manage Your Cash
Don’t forget the importance of maintaining a basic savings account with the goal of having 3-6 months of your income set aside. This may sound unachievable, but by diverting just 5% (or 4% or 3% or whatever you can manage now) of your monthly income to a savings account, you’ll be surprised at how quickly your family’s savings can grow.
The Final Word
The point of mindful financial planning is to modify behaviors. Ideally, you should divert a percentage of your monthly income (most experts say 20%)toward the three strategies we discussed today and learn to live on the remaining 80%. This will require you and your family to modify your financial behaviors. However, experience has shown us that those who learn to live within their means and enjoy the comforts their income allows are the ones who make it.