April is Military Saves Month!
Military Saves is a campaign organized by the Consumer Federation of America that encourages the military community to build their savings and pay down debt, with the end goal of increasing personal wealth.
Navy Mutual is proud to support Military Saves Month. It is a core part of our mission to “educate members of the uniformed services and their families on matters of financial security.” As always, we remain a resource to help you and your family achieve financial stability, set savings goals, and start saving. Setting financial goals and putting money away also protects you from any unforeseen expenses that may arise, such as needing to perform extensive vehicle maintenance or having to pay for a sick pet’s visit to the vet.
If you are not sure how to get started, consider the savings options listed below:
1. Save Automatically
Saving automatically is the easiest and most effective way to reach your savings goals because once set up, you do not need to remember to pay yourself first every month (before you spend any of the money you have coming into your household). It guarantees that you will contribute to your savings accounts each month, instead of waiting until the end of the month and depositing whatever money is left over. You can save automatically by having your employer deposit a percentage of your paycheck into a savings account each month, while the remainder goes to your checking account. You can also set up recurring transfers through your bank or credit union. Any time you get a raise or a bonus, update the amount of money you’re putting into savings – don’t use it as an excuse to unnecessarily upgrade your lifestyle.
Note: If you are a servicemember serving in a designated combat zone, you may be eligible for the DoD Savings Deposit Program. This allows you to deposit up to $10,000 to a savings account that earns 10% interest. Learn more here.
2. Save for the Unexpected
A new survey by Bankrate shows that only 44% of Americans could afford to pay for an unexpected emergency expense of $1,000 with savings. Having the funds in place for an emergency can prevent undue stress and help your family avoid going into debt. We recommend two different funds: an emergency fund and a rainy-day fund.
A rainy-day fund is used when the refrigerator breaks, for example, and you need $700 for repairs. An emergency fund would come into play if your spouse was laid off and you need enough money to cover the loss of income to your family for the amount of time it takes them to find a new position. Because a rainy-day fund is smaller (between $500 and $1,000), it’s the easier fund to save for. Once you have that amount saved up, you can turn your attention to your emergency fund, which should have between three and six months of living expenses stored in it, depending on how secure your paycheck is each month. The good news is that once these accounts are fully funded, you can put any extra money into retirement or your regular savings account because you only need to replenish the funds if you have to delve into them during an emergency.
Remember, too, that not everything unexpected is an emergency. You could be invited to an out-of-town wedding and need to use your rainy-day fund for plane tickets!
3. Save for Retirement
The earlier you start saving for retirement, the better. If you are a servicemember, you likely have a TSP account, which is the federal government’s version of a 401(k). If you’re not a servicemember, but you are employed outside the home, you may have access to an employer-sponsored 401(k), 403(b), or 457 plan. Anyone with earned income is eligible for an Individual Retirement Account (IRA).
Having a retirement plan in place will provide you with more financial freedom later in life and make you less reliant on Social Security benefits – or a paycheck – once you reach retirement age. Each year, you should review your contributions to your retirement accounts to ensure that you are contributing at least as much as is required to get the full matching amount from your service or organization, if you have an employer-sponsored plan. If you have an IRA, you can put in up to $6,000 each year, and every bit counts. If you are currently saving less than the federal maximum and can afford to increase your annual contributions, do so.
4. Save by Reducing Debt
Addressing your outstanding debt is another way to approach saving. Reducing debt now reduces the amount of interest paid in the long run. Consider a $5,000 credit card bill and an 8% interest rate. If you paid $100 per month, it would take 62 months (just over five years) to pay off your debt, and you would pay over $1,100 in interest. If you raised your monthly payments to $150 per month, you would pay off the same debt in just over three years and pay only $673 in interest. There are a few well known methods you can use to pay down your debt, including the snowball method and the avalanche method.
Read more: Debt Repayment Strategies.
It’s also important to pay your bills on time to avoid late fees and improve your credit score – the latter of which may help you access lower interest rates in the future.
5. Save as a Family
Start your children off on the right financial foot by instilling good money habits in them while they are young. While it’s important to have age-appropriate money conversations, it’s also important to set a good example. Your children learn from your behaviors and habits, so be wise with your money. If they see you making frequent impulse purchases or living beyond your means, they are more likely to replicate that behavior than if they see you saving for retirement and paying bills responsibly.
Learn more: Children’s Financial Literacy
When your family is saving up for something special – like that trip to Disney World – make sure that your children are involved. Put them in charge of creating a visual aide to help motivate you and allow you to see your progress. Depending on their age, this may involve coloring in stripes that represent progress toward your goal or putting stickers on a pre-drawn chart as your savings grow. By allowing your children to participate in the family savings plan while they’re young, you’re setting them on the road to becoming financially competent adults.
Take the Military Saves Pledge to hold yourself accountable in meeting your saving and planning goals. If you have any questions about which saving strategy is best for you, contact our financial educators at 888-294-4442. We’re here to help.