Arguably, the two most important days of a military member’s career are the day they join and the day they hang up their uniform for good. While the former involves excitement, the latter is often accompanied by anxiety and uncertainty about what the future entails. At least that’s how I felt before I left the United States Navy.
While I knew my transition from the military to becoming a civilian again would be arduous, my preparation and commitment to my finances helped me soften the blow of losing my military salary and TRICARE benefits. In this article, I will cover the financial tactics I used to ensure my transition. Those steps can help other service members transition smoothly into the civilian world.
Key Takeaways
- Before I left the military, about a year out, I assessed my current financial situation by taking a financial inventory of all income, savings, debt, and anticipated future expenses.
- I then built a budget, identified all of my essential expenses, and cut non-essential spending.
- I was able to place $10,000 in each of my money market accounts and online broker accounts, which was about eight months’ worth of living expenses for me at the time.
- I paid down as much of my so-called bad debt as possible, such as my credit card and vehicle loan debt.
- If you don’t have a traditional or Roth IRA to transfer your Thrift Savings Account (TSP) into, consider opening one.
Assess Your Current Financial Situation
Every service member knows their separation date. For those who are staying until their contractual separation date, assessing your financial situation at least a year in advance should be a top priority.
A good approach is to take a financial inventory of the following:
- Income
- Savings
- Debt
- Future expenses
This will identify any weak spots that need to be addressed for you to take the necessary proactive steps.
Build a Transition Budget
It’s important to note that service members entering the civilian sector lose not only their military pay but also housing benefits, subsistence allowance, and access to TRICARE. They should prepare for those financial blows. I found transitioning from the military to civilian life very difficult, but preparation is key. Savings should typically equal about three to six months of your living expenses. However, you may need up to a year or more, depending on your current financial situation, goals, and future costs.
Additionally, your transition budget should account for periods spent looking for your next career, which may have to be done without any income, while meeting the bare minimum living expenses, such as food, clothes, and housing.
Consider doing the following:
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Tackle Existing Debt
Debt can be a crippling burden, but not all debt is the same. There is such a thing as good debt (e.g., a mortgage loan) and bad debt (e.g., a credit card and a high-interest auto loan). Doing your best to pay down the principal of bad debt as much as possible will help smooth your transition to civilian life. If possible, service members with good debt, such as a mortgage, should consider refinancing it at a better rate.
In order to make it possible for me to pay down my debt, a drastic change in my money habits had to occur. I was able to pay off my vehicle loan and credit card debt by taking the aggressive approach of adding far more than the minimum payment to those balances. There are options you may want to consider, such as:
- Debt consolidation: Consolidating your debt can often make it easier to manage.
- Refinancing your auto loan: If your auto loan has a high interest rate, consider refinancing it for a better rate.
In addition to managing your debt, managing your credit score can help lower your borrowing costs. Using a credit monitoring service that fits your needs can help you manage your credit score.
Ensure You Have the Proper Financial Accounts
Having the proper financial accounts is essential. It’s mandatory for all military personnel to have a savings and checking account. But not just any bank will do. Make sure your bank is one you can easily access wherever you settle and work in the civilian world. While most institutions can conduct business online, banking with an institution not in your state can be problematic, especially if you need access to physical branches or frequent access to an ATM. Services such as lending may be limited as well.
Those leaving the service may wonder what they can do with their thrift savings plan (TSP). Keeping assets in the account until retirement is an option. But once separated, account holders won’t be able to contribute to it. If they continue in a federal occupation whose retirement system is supported by the TSP, they can kick into a new TSP account. However, rolling it over to a traditional or Roth IRA is also an option.
The Bottom Line
Service members separating from the military should not take the process lightly. I found it to be a big deal, and while I felt all my ducks were in a row, it was still very difficult. Before you separate, you should have a game plan for what will come by assessing your financial health and seeing where you stand. Then, ensure you create a budget to follow, reduce any bad debt as much as possible, and open relevant accounts to better service your financial needs and rollover assets from your TSP, if necessary. While the process won’t be easy, being prepared can mitigate frustration.