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Posts Tagged ‘TSP’

Preparing for a Delay in Military Pay

September 8, 2013 1 comment

You’ve read that the government is quickly reaching its self imposed debt ceiling. This has, in the past, at least threatened a delay in military pay until congress acts. During my 25 year career we’ve seen the threats at least three times, but only once was there a delay in payment. 

Here are a few strategies that you can use to prepare for a delay in your military pay.

  1. Tap into your emergency fund (EF). It’s a wise idea to have 3-6 months of expenses put aside in an accessible account for emergencies. By using the 8% challenge you can sock that away in a single assignment. When the military pay spigot gets turned back on you can refill your EF and then get ready for the next crisis.
  2. Open an account with a credit union. During the last threatened delay in payments the Navy Federal Credit Union announced that it would credit its members accounts for their usual military pay deposit without cost to the members. USAA later followed suit, but it was weeks after the NFCU announcement. That’s real customer service!
  3. Consider a loan through a Soldier, Sailor, Airman, or Marine resource, like the Falcon Loan.  The Air Force Aid Society offers Airman a no-interest loan of up to $750 to pay for emergencies and basic living expenses. This is considerably better than a pay-day lender or a high interest cash advance on a credit card.
  4. Borrow from your TSP account. If you’ve contributed to the Thrift Savings Plan, you can borrow 50% of your account balance up to $50,000 for five years at very low interest rates. If you are discharged with a loan balance outstanding, however, you’ll have to pay the entire balance back within 60 days to avoid extra taxes and penalties. 
  5. Talk to your creditors.  In a military town, merchants understand that they get paid when you get paid. Once you’ve exhausted your other options the best plan is to often call your creditors and work out a plan to pay them once you get paid yourself.  If you have loans with military friendly banks, they’ll usually work with you.  If not, then you can at least understand what the consequences are from their point of view.  

Don’t panic during the congressional debate regarding the debt ceiling. Use the discussion, however, to consider what you’d do if you didn’t get a paycheck for a month or two. This may motivate you to extend your emergency fund a few extra months and minimize your new debt acquisition.  If you have more suggestions, e-mail us at suggestions@yourmilitarymoney.com or comment.

 

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Should you pay for TSP advice?

The Thrift Savings Plan, or TSP, became available to military members more than a decade ago. It offers us the ability to save money before taxes come out, allowing the money to grow over time and then be taxed as ordinary income when we tap into it.

Most military members are not professional money managers, and you might be confused about the different investment options in the TSP. While there are just a few different options in the TSP it might still be a little overwhelming.

The TSP website offers a lot of general information that can help you make a decision over your investment mix. Too often, unfortunately, military members opt for either the safest possible fund, the “G-Fund” which is the default setting for contributions, or the fund that happens to have the highest rate of return when they sign up for the benefit.

As with picking mutual funds, sometimes the best choice is to get some help to pick the right funds for you. There are a couple of ways to get help. The first way is to go to your service’s support agency. The AIr Force Airmen and Family Readiness Center has personal financial management counselors who can explain the options and answer questions about the differences.

Another great option is Militaryonesource.com. You can use this service to get one-on-one counseling for all your financial concerns, including your TSP contribution choices.

A less attractive but very popular choice is asking your friends, family, or your supervisor how to invest your money. Like many gamblers, many of these individuals only recall their investment wins, avoiding or “forgetting” their investment mistakes.

A great choice is to hire a fee-only investment counselor to sit down with you and your spouse to discuss your entire financial situation. It’s really only in this holistic context that your TSP choices can be properly set.  If you can afford a few dollars now, it has the potential of making a big difference in your eventual financial health.