Your Financial Fresh Start For The New Year
By Jessica Perdew
Winter 2007-08
Many of us begin the new year with resolutions to lose weight or complete those unfinished projects cluttering our basements and garages. While these are worthwhile pursuits, perhaps this year your resolutions should include a hard look at your finances. We’re on the verge of a new year, so consider a financial fresh start.
Financial problems can become a tremendous distraction for anyone, of course. If you are a military member, such distractions could be catastrophic not only to you but to others around you. But there are other reasons to ensure the effective management of your finances. It’s been said that no one gets rich in the military. Armed with strong basic financial management skills, however, your military paycheck can stretch further than you ever thought possible.
Get Organized!
Before you can begin to manage your money, you must know where it is coming from and where it is going. Here is where you can sneak in an additional resolution: Get organized!
The current op tempo surely makes life hectic for today’s military families, and looking for things only detracts from time you could spend on more enjoyable pursuits. How many of us have spent early weeks of the new year digging through stacks of papers and receipts to find important tax documents? How many have moved boxes of old, useless paperwork from one side of the world to another each time a Permanent Change of Station (PCS) move occurs? Certainly you should keep important documents, but do you really need those 14-year-old Leave and Earnings Statements? Purge those old files!
But before you start shredding everything, consider Internal Revenue Service guidelines for document retention. Tax returns should be retained for three years. If you have amended a return, the three-year clock begins in the year you filed the amendment. Of course, this means all supporting receipts for your tax returns also must be retained. Because we are a mobile population and sometimes things are broken or lost in a move, military families also should retain receipts for big-ticket items for help when filing claims in a household goods move.
Organize the items you need to keep. It isn’t necessary to keep folders full of paper; consider scanning important documents into your computer and then burning them onto a compact disk. Create separate files for tax-deductible items, such as prepaid medical or childcare expenses, to reduce the pain at tax time.
A CD containing your household goods information can prove invaluable, especially when making a PCS move. As you make new purchases, scan receipts into your computer and burn these files to a CD for reference should the item become damaged or lost. You also may want to keep an inventory of household goods items, including serial numbers for electronics, in a spreadsheet or database on the same CD. When you add pictures of the items on the CD, you are fully prepared if you need to submit a claim. Don’t forget to hand-carry the CD with you so it’s not lost in the move.
Increase Your Savings
Now the real work begins: It’s time to evaluate your financial position. The U.S. Commerce Department says that Americans’ personal savings rate has slipped into negative territory in 2005 and 2006 (-1.0 and -0.5 percent). This means we spent more than we earned and used savings or credit to make up the difference.
Don’t contribute to this depressing trend! It is time to create a budget and determine your cash flow. In addition to the various tools available to help you, the Navy and Marine Corps Relief Society, Air Force Aid Association, Army Emergency Relief, Coast Guard Mutual Aid Association and installation personal financial managers provide free budget services to military members and their families. Even if you already use a budget, perhaps it is time to review your data – especially if you have recently moved, increased your family size or changed employment. Institute a two-pronged approach to your fresh financial start: Increase savings and decrease debt.
It is important to build savings into your financial plan – to pay yourself first. Whether you are building an emergency fund, planning a vacation or saving for a large purchase, develop the habit of setting aside money each pay period. Just $20 each week would amass annual savings of more than $1,000. Active duty members can save easily through the Thrift Savings Plan (TSP) and automatic savings allotments.
Perhaps you are thinking, “I can’t possibly pay all my bills and still have money left to save.” For most of us, this is a matter of priorities. Do you stop for coffee on your way to work in the morning? Do you eat lunch at a restaurant every day? Cut down on some of those coffee stops and bring some of your lunches from home, and there’s your $20 a week.
Don’t overlook the valuable savings awaiting you at your local installation. Commissary shoppers save an average of $3,000 annually for a family of four. Your exchange will match local competitors’ prices, and your purchase is tax-free. Your local recreation office offers substantial savings on tickets to local attractions and many theme parks. Some installation theaters even offer free movies. Visit www.militarysaves.org for further saving tips and help in setting your own savings goals.
Decrease Your Debt
While you begin saving, you also must deal with debt. The first step is to obtain your credit report. This is important not only to determine your total debt but also to ensure that your credit report accurately reflects your accounts.
The Fair Credit Reporting Act requires the three major credit reporting agencies to provide consumers with one free report annually. Since each company collects slightly different information, you should track all three reports. It is not necessary, however, to join and pay for services that track the three reports. The only official website to obtain your free reports is www.annualcreditreport.com, or you can call 877-322-8228. Choose a meaningful date, such as your birthday or wedding anniversary, to request your free report each year. For information on disputing errors, visit the Federal Trade Commission website at: www.ftc.gov/bcp/menus/consumer/credit.shtm.
Once you gain an accurate report of your total debt, you can formulate a strategy to reduce your balances. Focus on paying down your highest-cost credit card debt first. You may want to consider consolidating your credit card debt onto a single card and closing the other accounts. Some cards even offer a short-term, no-interest period for transfer balances. If you are currently paying only the minimum amount due on your cards, it will take years to pay off the balance. You may wind up paying for items you have long since discarded. Pay off as much as you can – certainly more than the minimum – and your balance will begin decreasing rapidly.
If you adhere to these simple steps, you will be well on your way to eliminating your debt and increasing your wealth. Congratulations! Just remember, if you have a temporary setback, all is not lost. Regroup and begin again.
# # #
Jessica Perdew is a deputy director of government relations for the National Military Family Association (www.nmfa.org).
# # #
Mortgage Trouble?
If you fall behind on your mortgage, contact your lender immediately to avoid foreclosure. Most lenders are willing to work with you if they believe you’re acting in good faith and the situation is temporary. Some lenders may reduce or suspend your payments for a short time. Others may agree to change the terms of the mortgage by extending the repayment period to reduce the monthly debt.
If you and your lender cannot work out a plan, contact a housing counseling agency. Call the local office of the Department of Housing and Urban Development or the housing authority in your state, city or county for help in finding a legitimate housing counseling agency near you.
Source: Federal Trade Commission (www.ftc.gov)