When starting a new year, almost everyone goes into it wanting to achieve greater financial stability. To do so, it’s important to review your overall finances and then start proactively planning to ensure your long-term financial success. Some financial goals you might consider for the new year include creating an emergency fund, sticking to a budget while saving, reviewing your insurance policies to make sure they meet your current needs, and paying down your debt. Here are a few ways to approach your finances.
Create an Emergency Fund
Unforeseen expenses don’t only surprise you, they can sap your available resources. Having an emergency fund allows for a designated amount of money to be set aside to cover unexpected costs. Consider using multiple bank accounts to guarantee that the money you use to pay bills is not the same money you’re saving in case of an emergency. Your emergency funds should be in the form of available cash and not in the form of stocks, bonds, mutual funds, etc.
According to the Office of Financial Readiness (FINRED), about 32% of Americans would have difficulty covering a $400 unexpected expense (e.g., a damaged tire, a pet’s illness) with their current account balances.1 The FINRED study goes on to stress that “an emergency fund serves as a safety net between military families and debt or financial hardship.” So even if you can’t see what’s coming or how you may need the extra savings, you’ll be glad it’s there when you need it.
Avoid Debt and Save Money
PCS moves, deployments, holiday gifts, and vacations can all take their toll on your bank account. To avoid unnecessary debt, make sure you’re not spending more money than you have coming in. If you make a habit of saving more money when you have the option to, you can also avoid debt because you’ll have available cash when you need it.
According to FINRED, “A good rule of thumb is to have three to six months of expenses saved.” If that seems daunting, start by building your savings and aiming for a $1,000 emergency fund. The amount you put away and the time it takes you to reach that savings goal is up to you, but since you never know when you may need that money, it’s important to be sensible and timely in developing and securing it.
If you are already in debt and not sure how you’ll find extra money to save, focus on getting out of debt first. FINRED advises that you should target the debt attached to the account with the highest interest rate first by paying as much as you can, even if it is only the minimum payment.2 You should also, pay down the account with the smallest balance. Once that is paid off, you can reallocate the money you were paying toward it to pay off other debts.
Review Insurance Policies
Regularly reviewing your existing insurance policies is important to ensure that they reflect your current situation. This includes confirming the beneficiary is correct, all account information is up to date, and that all policies are in good standing.
As an AAFMAA Member, you should add all of your essential documents to your Digital Vault in the to ensure that, when the time comes, AAFMAA Survivor Assistance Services can quickly and easily notify and assist your beneficiaries in applying for survivor benefits. Essential documents to include:
- DD214: Certificate of Release or Discharge from Active Duty: Used for military benefits and entitlements.
- Marriage Certificate and/or Divorce Decree(s): Required to apply for any survivor benefits.
- VA Award Letters, Rating Decisions, and Disability Breakdown: Used to build the claim to apply for any benefit your survivors may be eligible for based upon your medical history and service-connected conditions
- Recent Retired Pay Statement: If applicable, upload this document to ensure that the Survivor Benefit Plan can be awarded to your survivor as outlined on the pay statement.
If you have questions about financial education and resources or military and government benefits, please email AAFMAA Member Benefits at [email protected] or call 800-522-5221, option 2, then option 2 again.
1 https://finred.usalearning.gov/Blog/EmergencyFund
2 https://finred.usalearning.gov/Money/DebtTraps
This article was originally published January 23, 2019.