As an Army veteran, I was taught in the military that “planning is the art and science of understanding a situation, envisioning a desired future and laying out effective ways of bringing that future about.” Regardless of which branch of service you may have served, or what career path you’ve taken since, all veterans can apply this definition of planning as a guide. Take the following three-step approach to what all military veterans need to know about creating a financial plan and you can be on your way to accomplishing your goals.
- Understand your current financial situation
- Envision a desired future by setting short-term and long-term financial goals
- Lay out effective ways of bringing that future about by developing a financial plan
To get you thinking about where to start, let us begin with the basics:
Let us remember the service of our veterans, and let us renew our national promise to fulfill our sacred obligations to our veterans and their families who have sacrificed so much so that we can live free.
— Dan Lipinski, U.S. Representative for Illinois's 3rd congressional district
No matter if your goal is paying down debt or saving for your short- and long-term goals, you must first develop a budget.
Start by reviewing your bank statements to assess your current income and your current spending. Next, identify areas of your spending where you can cut out or reduce. Then, lay out effective ways to accomplish those goals such as keeping receipts whenever you spend money, using cash instead of your debit or credit cards, and selecting a financial accountability partner to provide encouragement or a kick in the butt when you need it.
You will measure your success by how much you can cut from your spending. Your next step is to effectively deploy that additional saved capital. As a note, you will follow those exact same planning steps for your debt and savings.
If you have debt, understand your current financial situation by determining how much you owe, the interest rates on each of those debts and the amount you are paying monthly. As an example, you might set a short-term goal of having your credit cards entirely paid off in 5 years and a long-term goal of reducing your 30-year mortgage to a 15-year mortgage. Next, develop a financial plan. For example, you may want to pay extra money toward your higher interest rate debts and less toward your lower interest rate debts.
Once a credit card or debt is paid off, you would take that payment and apply it to the next debt and repeat until all your debt is paid off.
Lastly, determine your short-term and long-term savings goals. Consider setting a short-term savings goal of having at least 6 months of your nondiscretionary spending (i.e., food, housing, utilities, health care, insurance, transportation and clothing expenses) in an account that is separate from the account that you write your bills from and also separate from your Thrift Savings Plan (TSP) where you keep your long-term savings.
Your plan may be to allocate 5% of your income toward your short-term savings goal and 5% toward your long-term savings goal. Once you have reached your short-term savings goals you might allocate 10% of your income toward your long-term savings goals.
For all military veterans, what you need to know about financial planning also includes what you actually do! “Do” is an action verb, which means the only way of bringing that future about is by acting now. A CERTIFIED FINANCIAL PLANNER™ professional can help you assess your current situation, set short-term and long-term financial goals and develop an effective plan. You can search for a CFP® professional in your area by visiting www.LetsMakeAPlan.org.