The way you handle your personal finances is important to the financial stability of every individual and family. Military service members and their families face unique challenges when planning for the future, especially during periods of deployment. For this reason it is especially important for members of the military to put their personal finances in order. The following tips can help you master the basics so you can deploy knowing you have built a strong financial safety net for your family.
Preparing for a military deployment can be hectic and stressful emotionally and practically. While deployed, military personnel are still responsible for financial commitments back home. This can include everything from rental or mortgage payments to credit card bills, utilities and car payments.
In the United States, the government provides limited financial protection to members of the military who are on active duty. Whether you have a wide network of family members and financial professionals to help you maintain your finances while you are gone or even if you just have a few trusted people close to you, you need to get a handle on your finances before leaving.
Managing Personal Finances for Military Individuals & Families
At the very least, any military personnel set to deploy on mission should spend a few hours with their parents, spouse or children to set a clear picture of any financial responsibilities, establish an order of action to manage tasks which will come up while you are away, and designate an authority to act in your place.
Here are five steps to putting your financial house in order before going on deployment:
Step 1: Gather all Pertinent Financials, Documents and Policies
To ensure everyone is on the same page, take time to list all of your financial obligations, account numbers, contact information and any other information that may be needed in your absence. Then gather your financial records, tax returns, mortgages/deeds, insurance policies and past budgets into an organized folder so you or your family may reference it while you are away.
Step 2: Prepare a Monthly Budget
Make a monthly budget. Look over the expenses your household typically spends on a monthly basis. Your budget should include every expense that you pay at regular intervals, such as rent or mortgages, car payments, utility bills, credit card debts, insurance premiums, food expenses, etc…
Then, itemize every income stream (i.e. paychecks, investment income, and et.al. to see if you (and your family) have enough to cover the basics.
Your budget information will be invaluable to anyone who handles your finances in your absence. The more data you can provide to that person, the better your chances will be that you will not need to fix any financial problems when you return.
And be sure to contact your bank or credit union; some institutions will handle delays in payment or provide extensions with extra leeway for deployed service members. Other services could include streamlined or discounted loan application processes and special seminars to help you understand all your options.
Step 3: Establish an Emergency Savings Fund
Once you’ve determined your monthly budget, it’s a good idea to save a little extra in case you or the family encounters unforeseen expenses — you never know when a pipe might burst in your living room! Most financial experts recommend having 3 to 6 months of income saved in a separate account exclusively for emergencies.
For service members who face deployment additional savings is required. Don’t wait until you receive your orders to start an emergency savings fund. Find ways to cut costs or increase your income now to avoid falling short in the future.
Step 4: Review Insurance Protections
Take a moment to review each of your insurance policies (auto, home, life and health insurance). Confirm the beneficiaries are up to date and correct. Additionally, inquire about any special benefits that apply to military members while deployed, such as auto insurance freezes while your personal vehicle is non-operational, and confirm that your premiums will be paid on time.
Step 5: Determine Who Will Legally Act on Your Behalf
Finally, you will want to designate a Power Of Attorney, a spouse, trusted friend or relative, to act on your behalf for financial or legal transactions while you are away. To ensure things run smoothly in your absence, it is imperative that this person has legal authority to make decisions for you or your family.
You should also provide notice in writing to all your creditors and other financial institutions that you are being deployed and have designated a legal person of contact for their concerns — give a copy of this notice to your power of attorney as well.
Military Service may Qualify You for Special Tax Advantages
Do not forget to prepare your taxes before leaving on deployment. The deadline for filing could be months away, however, a little preparation could uncover additional tax benefits you or your family could be taking advantage of for the duration of your deployment.
When you factor in the possibility of tax-free income and other allowances, deployment may actually be a boost to your family finances. Have a plan in place for this extra income to ensure it is not absorbed into your regular budget. You can add it to your emergency fund, pay off consumer debt or invest it for the future.
Tax Breaks for Military Individuals and Families
Passed in 2003, the Military Family Tax Relief Act created the following tax breaks for military personnel.
- Death Benefits — Death gratuity paid to survivors is $12,000 and is tax-free income.
- Sale of Principal Residence — suspends the five-year ownership-and-use tax penalty period prior to the sale of a residence.
- Deduction for Overnight Travel Expenses of National Guard and Reserve Members — Reservists who report for service and stay overnight at a place that is more than 100 miles away from their residence may deduct unreimbursed travel expenses, such as gas, food, and lodging.
- Department of Defense Homeowners Assistance Program — Payments made via this program after November 11, 2003 are excludable from gross income.
- Combat Zone Extensions Expanded to Contingency Operations — Extensions given to service members in a combat zone are also granted to personnel serving in a contingency operation.
- Dependent Care Assistance Programs — Dependent care assistance programs for military personnel are non-taxable benefits.
- For Service members or Veterans in School — Student service members can claim regular student tax benefits, such as American, Lifetime, and other deductions. Under these tax programs, students earning under a specific amount may qualify for a credit that they can put against their annual taxes.
Get Personalized Assistance from Financial Professionals
Mastering your personal finances and reaching your financial goals while on deployment is more difficult than opening a savings account at the local bank with automatic bill pay and walking away. There are tax savings, stocks, individual retirement accounts (IRAs), Thrift Savings Plans (TSPs) and insurance policies to consider. It’s also hard to know how much money to contribute or how much protection to purchase. However, putting your finances in order does not have to be a headache.
Working with a team of financial professionals [financial advisors, tax preparers, insurance agents, college planners and others] is the best way to manage your money while you are away, to build personal wealth and save for important events such as buying your first home, retirement or college tuition. Military servicemembers interested in building a strong financial safety net and planning for the future should seek out a trusted financial advisor in their state of residence. If you need a referral to a great financial, tax, retirement, or investment advisor, let me know