5 Finance Mistakes Military Members Make and How to Remedy Them

NEW YORK (TheStreet) — Military members are prone to making the same financial mistakes as other consumers, especially when it comes to budgeting, paying down debt and saving for retirement.

Here are five common mistakes made by those in the service and the ways to remedy them.

Problem 1: Getting Into Debt

Since military members always have a steady, government-issued paycheck, they are attractive customers for lenders who often approve them for credit cards and loans. Too many businesses are eager to "help" service members purchase expensive items with their new credit, because the companies can charge exceptionally high interest rates, said Michael Meese, a retired Army brigadier general and the COO of the American Armed Forces Mutual Aid Association (AAFMAA ) in Fort Myer, Va.

Solution: Have an emergency fund. Just like other Americans, saving three to six months of your monthly expenses in a rainy day fund can help mitigate any emergences and to avoid "going into debt to make ends meet," Meese said. All military members have to do is save "1/12th of their paycheck each month and they can create an emergency fund in less than three years," he said.

Problem 2: Retail Therapy

Since military members often face additional pressure and stress from deployments and moves, they receive additional compensation in the form of special pay and entitlements. Instead of budgeting for their expenses and retirement needs, some members and their families overspend "as a means of coping with the stresses of military life,” he said.

“Instead of using a financial windfall from a deployment to help them to get ahead, it actually can put them farther behind financially,” said Meese.

Solution:  Avoid the debt trap; keep everything in moderation. The salary and allowances that military members received can cover all necessary expenses, said Meese.

"They should strive to live within their allocated income and should not take on expensive consumer debt," he said.

Taking a cash advance from a credit card or obtaining a loan from a payday lender means you will be paying extremely high interest rates. Instead, opt for organizations which offer low interest loans.

"The AAFMAA provides a $4,000 loan at 1.5% for its members in the ranks of sergeant to captain," Meese said. "Other service relief or aid societies provide grants or low interest loans for specific needs."

Problem 3: Re-Entry Challenges

Some soldiers wind up creating tension by “criticizing the decisions made during his or her absence” after returning home, Meese said. Since the spouse who did not deploy on a mission often has to take on the responsibility of paying bills such as the mortgage or car maintenance or managing debt such as credit cards, sometimes it can be “hard to understand how and why decisions were made,” he said.

Solution: Use proper financial planning to rectify a problematic situation-- for retirement and beyond. 

Too many military members fail to save enough for the future such as paying for college or their retirement. Instead of spending your next raise, save at least half of it for long-term savings, said Meese. Service members who implement this strategy when they are younger and just starting out in their career can save for their goals of purchasing a home, buying a car or transitioning out of the military.

Only 41% of those in uniform participate in the government's version of a 401(k), the Thrift Savings Plan, said Montanaro.

"Whether it's the belief that the military retirement system's pension is all they need or just a reflection of the fact that our military is a microcosm of our non-saving society, this isn't good enough," he said. "That number could change dramatically with a proposed overhaul of the retirement system, but in any case there's work to be done."

Problem 4: Lacking Adequate Insurance Coverage

Although the Servicemembers Group Life Insurance (SGLI) provides coverage of a maximum of $400,000, it may not be enough for a surviving spouse and children to support themselves, said Meese.

Solution: Military members should still purchase additional life insurance, especially if they have dependents. 

SGLI is a program which provides low-cost term life insurance coverage to military members.

“Service members can supplement SGLI with affordable coverage from non-profit organizations that exclusively provide military life insurance,” Meese said.

Problem 5: Relying Too Much on Government Options

While many of the options provided by the government are good, there are other affordable options, said Meese. Shopping around for insurance can often be beneficial.

“Military members should shop around for alternatives,” said Meese. “Other organizations, such as the AAFMAA provide the same kind of insurance such as SGLI for those in the service or Veterans Group Life Insurance for those who have left the service. Insurance from other groups can be much less expensive while providing better services than those provided through the government.”

Solution: Take advantage of the right resources. 

While the majority of military bases have financial counselors available to give members and their families free advice on how to create a budget, pay their debt or how to save for retirement, more people should be taking advantage of their free guidance, said Meese. One resource is the Department of Defense Military OneSource's website which offers financial tips and free online tax preparation services. The Department of Labor Veterans' Employment and Training Service provides resources to help members and their spouses find employment when they transition into civilian life.

While independence and self-sufficiency are valued in the military culture, too many people skip over the free financial counseling.

"Those traits can be a roadblock to financial success," Montanaro said. "Free financial counseling can provide the knowledge and tools service members need to get and stay on track with their money."

Failing to continually reinvent yourself as you move during your career can also pose issues. Some people embrace the opportunity to create a new budget, savings habits or financial goals each time they move, he said.

"My wife's father served in the Army for decades and as a child she moved six or seven times while she was growing up and she loved it," Montanaro said. "One thing she said that resonated with the financial planner in me is that each move offered up the opportunity to reinvent herself financially."


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