Advice before you commission

Create a Spending Plan (00:00):

Congratulations on starting your career!

As you settle into your new role as an officer, you probably have big plans for your money. But without a budget, also called a spending plan, you could spend more than you make and end up in debt or fail to achieve your financial dreams. It's important that you create your budget before you get your first paycheck. Having a budget will give you control over your money, so you decide where it's going.

Creating a budget is easy, and it doesn't have to suck the joy out of life.

Divide and Conquer (00:29):

Here's how:

Divide and conquer. Split your after-tax income into three categories: saving and paying down debt, needs, and wants. An initial goal is a 20/50/30 budget. 20% of income goes towards savings and paying down debt; 50% is spent on needs; 30% on wants.

We often run into trouble when we confuse wants with needs.

Ask yourself: Do I really need that brand new $1,000 phone when my 1-year-old phone works just fine?

If you can afford to buy the new phone without charging your credit card, go for it. Otherwise, you might want to think again.

Fine-Tune Your Budget (01:09):

Fine-tune your budget. Once you create your budget, live with it for a few months and then adjust as needed. For instance, if the military moves you to a city where the cost of living is high, the 20/50/30 budget might become a 20/70/10 budget.

Be Flexible (01:24):

Be flexible. You might find that things like groceries or utilities are more expensive than before. Have a look at your budget every now and then so you can keep it updated. While a budget is the foundation of your financial security, it needs to be flexible to changes in your life circumstances.

By understanding and controlling your spending, you can make your money work for you and not the other way around.

For more education and resources for your finances, visit usaa.com/advice.

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Look Toward the Future (00:00):

Your credit score. It can affect many parts of your life, like borrowing money, your military security clearance or renting a house or an apartment. Plus, when you leave the military and apply for a civilian job, the employer may run a credit check.

So, what exactly is a credit score? Think of it as a test in how trustworthy you are with money. For example, how likely are you to pay back that borrowed money?

Credit Score Recipe (00:24):

How can you improve the score you have? Let's take a look at five things that make up your credit score or what we call the credit score recipe.

35% of your score is your payment history: Have you paid your bills on time or missed payments? If you're late on one payment, you may have a greater chance of being late again and getting really behind. Going a month without making a payment at all can negatively affect your credit for up to seven years. Go three months or longer and your credit can really take a hit.

30% of your score is how much you owe: Owing less is better. Don't fall into the trap of thinking that having a credit card balance will help your score. It won't. Lenders want to be sure you aren't overextending yourself.

15% of your score is your length of credit history: That's right, you get credit for having credit longer. Since you can't control how long you've been in the credit game, take positive steps in other areas so you can still end up with a good score.

10% of your score is new credit: How many times have you applied for credit? If you've opened too many accounts in a short time, a lender can see you as a higher risk. This also applies to what's called a hard inquiry, even if you don't open the account. Lenders do hard inquiries each time you complete a credit application. The result? Your credit score could be dinged for up to a year.

10% of your score is your mix of credit: Say you have a secured loan, a car loan and a mortgage. Show responsible use of credit across these loans and see favorable results on your credit report.

Other Ways to Improve Your Score (01:58):

Still need to improve your score? Be sure to pay your bills on time, use credit responsibly, and keep the amounts you owe and how much credit you have available as low as possible. Plus, review your credit report regularly. Look for inaccuracies and dispute any errors you find. An error not only negatively affects your credit, but it also hides positive steps you've taken.

For more financial education and resources, visit usaa.com/advice.

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Life Happens (00:00):

Times are rough and money is tight. While you're probably looking for ways to stretch your dollar, life happens.

Your transmission goes out on your drive to work. Or you're forced to fly across the country to visit a sick relative.

You need to come up with money fast. And unless you have an emergency fund in place, you're going to have to use a credit card and rack up debt to eat the cost.

It's important for everyone to have an emergency fund. Ideally, you should set aside 3 to 6 months of living expenses. That can sound like a lot of money, but don't get discouraged. With a little planning, you can save money even when you're in a bind.

Steps to Take (00:38):

Here's how:

Control your spending: Try to cut expenses, such as eating out, entertainment and shopping. This will free up money that you can move to your savings account.

Set an initial goal of $1,000: The key is to start out small. $1,000 may seem like a big chunk of change but even putting away as little as $25 every month will get you there. Once you have that much saved, continue to add more to your emergency fund.

Automatically transfer money: If you're expecting a tax refund or a bonus, have it automatically transferred to your savings account. That way, you're not tempted to spend it.

If you follow these tips, you'll be well on your way to growing your emergency fund. For more financial education and resources, visit usaa.com/advice.

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Look Toward the Future (00:00):

What does your future look like in and after your military service? Do you plan to buy a car, buy a home, support loved ones and retire one day? Following three simple principles may help you reach your financial goals: start early, start small and stay committed.

Start Saving Early (00:19):

First, we can't overstate the value of starting early. The best time to save is now. When you start early, whether you're in ROTC or pre-commissioning, you can take advantage of compounding interest.

Take Advantage of Compounding Interest (00:31):

Let's look at how the financial decisions of Tim and Bill created hugely different results.

After graduation at age 21, Tim chose to delay saving. At age 31, he started investing $500 a month into his individual retirement account, or IRA. When he reaches age 60, his account could hold about $625,000 if he earns an 8% rate of return.

Bill began saving at age 21. He saved $500 every month. But since he started 10 years earlier than Tim, he saved $60,000 more. If Bill earns the same 8% rate of return, then his account could hold $1.4 million when he reaches age 60. Over time, the extra $60,000 could become about $800,000 more because of the power of compounding interest.

Start Small and Stay Committed (01:27):

The next principle is start small, because it's better than not starting at all. If you can't start with saving 10% each paycheck, then try 5%. Under the Blended Retirement System, if you put in 5% of your basic pay into your TSP, the military will match with 5%. The third principle is stay committed. Most people save for their retirement for 40 years or more.

Additional Tips (01:53):

These tips may help you reach your goals.

Pay yourself before you pay bills. If you wait, there may be nothing left.

Make it easy with an automatic payroll deduction or transfer.

Increase your savings with each raise or bonus. If you do, you may reach a saving rate of 10% or more much sooner.

For more education and resources for your finances, visit usaa.com/advice. Description of visual information: [Visit usaa.com for more information.] End of description.

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Unique Benefits (00:00):

Serving in the U.S. military offers you a unique set of financial benefits. Let's look at a few of them.

Saving Deposit Program (00:08):

The first is the Department of Defense, or DOD, savings deposit program. You can sign up after you've been in a combat zone for 30 days and earn up to 10% interest. You may have limited access to your money while it's in this program, so make sure you won't need to touch it until the end of your deployment. After you return home, you'll can continue to earn interest for 90 days.

Thrift Savings Plan (00:30):

Next up, we have the Thrift Savings Plan, or TSP. This is essentially the military's 401(k) retirement plan. You make contributions to either a traditional or Roth retirement account through your payroll deductions. If you're under the Blended Retirement System, or BRS, you receive extra money as soon as you're eligible. Here's how it works. First, the DOD automatically contributes 1% of your basic pay to your TSP account. Then, if you contribute 5% of your basic pay to the TSP, the DOD puts in another 4%. That's an extra 5% in free money you can count on from the DOD.

Military Retirement (01:11):

Finally, let's talk about military retirement. You can generally qualify for retirement after 20 years of service. With that comes two key benefits. The first is TRICARE, the low-cost health insurance plan you can get for you and your family. The second is your military pension, or what we call the paycheck for life. Under the BRS, the pension is calculated as 2% of your basic pay multiplied by each year you serve. So, if you retire after 20 years, you'd be eligible for 40% of your basic pay with an adjusted cost of living. For the rest of your life.

Add to Your Existing Benefits (01:47):

Add these things to your ongoing access to the commissary, base exchange, space-available travel, tax benefits and discounts nationwide. It's clear your military service is recognized long after you hang up your uniform. For more financial education and resources, visit usaa.com/advice.

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