Saving regularly is essential to smart money management, but it can be a challenge. Immediate needs have a way of interfering with your spending plan, even in the best of times.
One way to make saving easier is by having part of every paycheck deposited directly into a designated savings account, with the rest going into your checking account. All you have to do is sign up at MyPay (mypay.dfas.mil). The savings account can be either in the same bank or credit union where the rest of your pay is deposited or with another institution you select.
Upfront saving does mean you’ll have less to allocate for other expenses. That can be tough, at least initially. But the satisfaction of knowing you’re doing the right thing can make the struggle worth it. You’ll be grateful you have savings available if you need extra cash unexpectedly. Better yet, you’ll be able to afford something you really need or want.
There’s no “right” amount to save. You might want to start with 10% and adjust up or down from there. You can change the allotment easily, also at MyPay.
As your savings balance grows, you may want to divide your primary account into accounts for specific goals: a rainy day fund, an emergency fund, a short-term goal fund, and a saving-to-invest fund. Though subdividing isn’t essential, the advantage of separate accounts is that you know what’s available for each use.
For example, when your emergency fund balance equals six months pay, you could increase what you allocate to other accounts, such as short-term goals. And as you accumulate more savings you can use some of the money to buy a CD, which will probably pay interest at a higher rate than ordinary accounts.
There’s no additional charge for multiple accounts, and if they’re at the same bank or credit union, you’ll get just one monthly statement. So recordkeeping isn’t any harder either.
Another plus of accumulating savings is that it may make it easier to borrow at a lower rate when you’re ready for a major purchase, like buying a home.
Saving and deployment
If you’re deployed, you may be eligible to participate in the Savings Deposit Program (SDP). This government savings program pays a guaranteed10% interest rate on account balances of up to $10,000. To learn more about SDP, you can go to the Defense Finance and Accounting Service website (www.dfas.mil/militarymembers/payentitlements/sdp) or ask your disbursing, pay, or personnel office for more information.
If you’re deployed to a designated Combat Zone Tax Exclusion (CZTE) area, some or even all of your normal pay may be tax-free while you are on duty there, based on your rank. Because no tax is withheld, you’ll have more take-home pay. That will let you increase the percentage you’re saving.
Similarly, if you re-enlist while you’re in a combat area and are entitled to a re-enlistment bonus, that bonus may also be tax-free. Adding the bonus to your savings account is a smart way to kick-start it or give it a big boost.
Insuring the future
If you have dependents, one of the reasons you’re saving is to meet the financial goals you have for your family. Another essential way to provide for their future is with adequate life insurance that would pay a benefit if you were to die.
You and your family are eligible to buy lowcost life insurance that the US government offers exclusively to members of the armed forces—Servicemember’s Group Life Insurance (SGLI) and Family Servicemember’s Group Life Insurance (FSGLI). It’s worth taking full advantage of this special coverage.
You’re automatically enrolled for SGLI when you join the military and must opt out to decline the coverage or to pay for less than the maximum death benefit. Currently, the maximum SGLI coverage is $400,000.
With SGLI, you are also covered by Traumatic Servicemember’s Group Life Insurance (TSGLI), which can provide a lump-sum payment of $25,000 to $100,000 to you or your designated beneficiary if you sustain severe injuries while in service. In addition, if you’re severely wounded while on active duty, you may also be eligible for continuing SGLI coverage after you’re discharged.
If you’re enrolled in SGLI before separating from the service, your coverage will automatically continue for 240 days following your date of discharge or separation. Then, as a veteran, you can participate in Veteran’s Group Life Insurance (VGLI), which is similar to SGLI.
You can find more about all of the insurance coverage the military provides on the Veterans Affairs website at www.insurance.va.gov.
©2014 A Salute to Smart Investing. Reprinted with permission of the publisher, Lightbulb Press, Inc. All Rights Reserved.
INSURANCE FOR YOUR SPOUSE
If you have small children, it’s a good idea for your spouse to have life insurance even if you’re the primary breadwinner. If your spouse dies, the death benefit can pay for extra help you’ll need at home to cover the responsibilities he or she handled.