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When Army Capt. John “JD” Dolan was a new infantry platoon leader in the 10th Mountain Division at Fort Drum, N.Y., he figured his biggest challenge would be training his men in new and exciting ways to take down bad guys without getting in the way of his platoon sergeant.
Instead, he quickly learned that “nine out of 10 times, our biggest problems were financial issues,” Dolan says.
His men were deadly fighters, but too many were getting killed financially by predatory lenders, bad credit and a minefield of other money mistakes.
When he moved on to command units at the 75th Ranger Regiment, it was just as bad. Frequent deployments downrange only compounded the problems.
And just as bad, too many troops neglected benefits and simple financial tactics that not only could have saved them money but also put more cash in their pockets.
Two of his buddies, captains in other units, saw the same problems. After enough hip-shot classes and cobbled-together cheat sheets that aimed to help their troops avoid these financial fails, they pulled together their lessons learned into a new book,“The Soldier’s Financial Leadership Guide.”
Avoid these financial pitfalls and you’ll save big bucks. And not coupon-cutting chump change, either — we’re talking thousands of dollars in here-and-now savings and tens of thousands over the long haul.
Better yet, follow our experts’ “Do this instead” advice, and in many cases, you’ll actually make money. Want to pocket an extra $850 on your next deployment for doing absolutely nothing? Keep reading.
Cars and credit
FAIL: Getting sucker loans
Like vampires, “easy credit” stores lurk outside just about every military installation in the country, waiting to suck your wallet dry. Signs promising “No Money Down” and “We Finance E-1 and Up” are typical giveaways.
Dolan dedicates an entire chapter of his book to these lending leeches, which sell everything from appliances and furniture to cars and electronics. He says the usual hook is a low monthly payment that obscures a sky-high interest rate that often tops 20 percent and, worse still, will keep compounding over many years.
“So, you end up paying two and even three times over for that awesome new washer and dryer,” he says.
Do this instead: Get away from the off-base hive and shop around. Don’t neglect to check prices online — bar-code scanning apps make that easy, even while you’re in the store. And no matter what, carefully read the fine print on any payment agreement. “If it sounds too good to be true, it almost always is,” Dolan says.
Also be wary of pressure sales tactics, no matter where you shop. If a salesperson says you need to buy now, walk away. If the loan agreement suddenly gets tweaked just as you’re ready to sign, come back later after you’ve had some time to look things over.
FAIL: Buying a car just outside the gate
Among the just-off-base bloodsuckers, the king bats are the car dealerships, Dolan says.
While there will always be exceptions, most of these outfits hike prices and terms because they know they can prey on GIs who are more focused on getting some wheels quickly than making sure they’re not getting taken for a ride.
Do this instead: Instead of taking a cab to the nearest dealership, ask a buddy to drive you to some of the more reputable dealerships farther out in the real world, and be sure to buy lunch and pay for the gas. Or, just rent a car for the day. Either way, Dolan recommends checking with USAA’s “Certified Dealer” listing as a good place to start.
FAIL: Buying a new car or truck every few years
“This is an epic fail that you see all the time, unfortunately,” Dolan says. Financially, there’s no upside. New cars depreciate by an average of 20 percent within one year. For example, the auto experts at Edmund’s calculate that a new Nissan 370Z purchased for just under $30,000 loses $2,600 in value the minute you drive it off the lot. Within two years, it’s only worth about $20,500.
Meanwhile, if that was, say, a five-year loan at 4 percent interest, your $552 monthly payment has paid the bank $2,000 in interest, but you still owe more than $18,000 for the car. Trade it for the next new model, and you’ve basically got nothing to show for those two years of payments.
Do this instead: If you just can’t live without the latest model all the time, you’re probably better off leasing. You’ll still have nothing to show for it, but at least the monthly payments are less. A better option: Consider buying a used but still relatively new model that has taken the initial depreciation hit but still has all or most of its new car warranty. And then keep it for a while. Once it’s paid off, that car payment is going into your pocket.
FAIL: Leasing or buying too much car
When freshly minted 2nd Lt. Lauren Gore got to his first duty station at Fort Riley, Kan., one of the first things he did was lease a tricked-out Audi A4 luxury sedan that, after factoring in gas and insurance, ended up devouring more than 30 percent of his monthly pay.
“I acted on impulse and leased a car whose performance capabilities exceeded my needs of getting to and from work and running errands when off duty,” says Gore, who saw his mistake repeated all too often as a young officer before leaving the Army recently to attend Harvard Law School and start his own business.
Do this instead: Gore, co-author of “The Soldier’s Financial Leadership Guide,” learned from his mistake and, as soon as his lease was up, bought a used but more fuel-efficient Honda Accord for about $15,000. And because he knew the Honda retained value, he was able to make most of the money back when he sold it a few years later.
FAIL: Borrowing on two salaries
It’s easy to think you can afford some big new purchase when you have two incomes rolling in.
“But when it comes time to move to a new duty station, the spouse’s job doesn’t usually transfer,” says Caroline Bird, who was an on-base financial counselor for sailors and Marines in Japan and is a now professor of personal finances at North Carolina State University in Raleigh.
Plus, the spotty economy means your spouse’s job could disappear even before it’s time to PCS.
Do this instead: Put together a contingency budget based just on your military income, and balance any long-term buying decisions off that, Bird says.
FAIL: Buying a car without factoring in insurance
Bird remembers the sheepish sailors and Marines who would come into her office and say they were buying a new car, only to learn they couldn’t afford the insurance that had to come with it.
“Often — and especially for young, single men — full-coverage insurance will cost as much, if not more, than the car payment,” she says.
Do this instead: Compare rates for the kind of cars you’re interested in ahead of time to get a ballpark on what to expect and how much car you can actually afford. When you’re ready to buy, be sure to get a hard quote so you know exactly what you’re getting into. Sports cars and luxury sedans tend to be the most expensive to insure, while minivans, pickups and some four-wheel-drives will get the deepest discounts.
And remember this: If you can pay cash for the car, you don’t have to get full-coverage insurance, giving you the option of using lower-cost liability insurance instead.
FAIL: Trusting the “veteran” salesman
That smooth-talking salesman on the showroom floor who starts swapping war stories and rattling off jokes about officers may not be the ally you think he is. Just because someone served, or says he did, doesn’t mean he’s not more interested in making the sale than making sure you get the best deal.
It’s called taking advantage of an “affinity relationship,” Bird says, and it’s a common tactic among salespeople.
Do this instead: Shop around and make sure you know what really constitutes a good deal before you make any big purchase.
Taxes, deployment and savings
FAIL: Paying state income taxes
Depending on what state you’re from and your pay grade, you can be losing more than 10 percent from every paycheck. Just ask anyone from California or New York, which are among the worst when it comes to taking a cut of your pay.
But there are nine states that don’t collect any income taxes: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.
Do this instead: Change your state of legal residence. If you’re currently stationed in one of the tax-free states, changing is relatively easy. If you previously lived in one of the tax-free states and express an intent to move back, that gets more complicated, but it’s possible if you have proof that you lived there — a driver’s license, old bills, mail, etc. — says Lee Kind, a former Army captain and author of the military-focused “Financial Fitness” guidebook. Either way, you’ll want to consult with your legal assistance office and fill out form DD 2058.
FAIL: Getting talked out of your VA Loan — or not
No money down and super-low interest rates for home buyers make VA loans one of your best benefits. But they come with loads of extra paperwork that make them a hassle for real estate agents, Kind says. Lazy agents may try to steer you away from a VA loan just so they don’t have to mess with it all, he says.
Do this instead: Do your homework. Sometimes there really are better options, especially in seller’s markets where competition for properties is high and a VA loan could your hurt your chances of getting the house you want. “As a seller, if there are comparable offers with the three different types of loans, the real estate agent will usually recommend the conventional loan, as there is less red tape associated with it,” Kind says.
FAIL: Making a big purchase before deployment
Whether it’s a pimped-out new truck, that dream bass boat you’ve had your eye on, or whatever, don’t be the guy who buys a big-ticket item just before deployment. While it may give you a warm fuzzy to know it’s there waiting for you when you get back, in reality, it’s just a slow, unnecessary bleed on your finances. And don’t kid yourself into thinking of it as an “investment.” Unless it’s made of gold, your new toy is actually losing value with every day you’re gone.
Do this instead: Whether you’ve got a big bonus check burning a hole your pocket or you were just going to take out a loan, if you invest that money while you’re gone, you’ll have even more money to play with once you get back.
FAIL: Leaving your money in a basic savings account when downrange
The math doesn’t get any easier. The 1 percent interest rate your war stash would earn in a typical savings account doesn’t even beat inflation these days.
Do this instead: Park your money in a Savings Deposit Program account with the Defense Finance and Accounting Service. You can invest to up to $10,000 tax-free with a 10 percent guaranteed interest rate. With interest compounding quarterly for up to 90 days after you leave the combat zone, investing the full $10,000, for example, will earn $858 within 10 months.
Contact your finance office to set it up when you arrive in theater, and bring your checkbook. “Once you max that out, max out your Roth IRA if you’re not already doing so, and then invest into your TSP account,” Kind says.
FAIL: Paying high interest rates while deployed
If you’re going downrange, you may not have to pay those killer credit card interest rates. Under the Servicemembers’ Civil Relief Act, at the very least lenders should cut you a break for any debt incurred before coming onto active duty. Many credit card companies, however, will cap rates at 6 percent while you’re deployed, no matter when you racked up the debt.
Do this instead: “Contact all the companies you owe money to and ask them to lower your interest rate while you are deployed,” Kind says. USAA, for example, will typically lower credit card debt to 4 percent for those downrange.
Coming and going
FAIL: Not doing a “DITY” or partial PCS move
When it’s time to change duty stations, too many troops have the government do all the packing and moving for them and fail to pocket thousands of extra dollars.
Do this instead: Do-it-yourself moves, now formally known as Personally Procured Moves, are often the best option for single soldiers or couples without kids or lots of stuff. But even the biggest families can come out ahead with what’s called a “Partial PPM,” in which the government does the heavy lifting on some of your household goods and you deal with the rest.
It works like this: the government pays you a little less than what it would have cost to hire contractors to come do all the packing and shipping. More often than not, you can do it all yourself — or hire your own movers for some or all of it — and keep the balance.
“It’s a no-brainer,” says Dolan, who made $3,600 — that’s after all expenses — by moving himself from Fort Drum to Savannah, Ga.
And don’t forget: You’re getting reimbursed in part based on the weight of your goods. So if you’re under your limit and have had your eye on, say, that new weightlifting set, it could pay for itself in the move if you buy before you leave.
FAIL: ETSing in a hurry
You’ve made the decision to hang up your uniform and move on to new ventures. Now protect the investment you’ve made from serving by making sure all your paperwork is in order. Too many troops treat separation like a race to the finish line and not a deliberate final mission. “Some things are not impossible to fix later,” says Dolan, “but it does become much, much harder.”
Do this instead: Make sure these three things are good to go before you go:
■ DD 214: The usual mistake here is failing to ensure that your most recent awards, decorations and evaluations are included on your discharge. Missing info can mean missing out on job opportunities and benefits later on.
■ Medical records: Make sure they include everything from prescriptions taken to even the most minor procedures through your entire time of service. And be sure to get a thorough final checkup; you may think that broken ankle was no big deal, but when you need surgery 10 years from now, having that documented — being able to prove it’s a service-related injury — could save you thousands in medical bills alone.
■ Job and school prospects: Too many troops think getting a job and going to school will be easy once they’re out, says Dolan. But they don’t realize that, say, the law enforcement job they’re counting on could take a year or more to actually nail down — or that it doesn’t pay a salary while they’re at their academy. Instead, do your research, probe the details and start applying for jobs while still on active duty.
If you’re going to school, be sure to check on admittance and registration deadlines so you’re not left waiting for the next semester to roll around before you can start. And just because you’ve got the GI Bill paying your way, don’t let that stop you from applying for grant and scholarship money.
FAIL: Retiring in a state that taxes your military pension
More than half of the states — 28 in all — charge some kind of tax on military retirement pay, some as high as 14 percent. That can translate into thousands of dollars a year in lost income.
Do this instead: Retire in one of the 22 states — soon to be 23 — that don’t tax military retirement pay: Alabama, Alaska, Florida, Hawaii, Illinois, Kansas, Kentucky, Louisiana, Massachusetts, Michigan, Mississippi, Nevada, New Hampshire, New Jersey, New York, Ohio, Pennsylvania, South Dakota, Texas, Wisconsin, Washington, and Wyoming. Missouri is slated to join the club in 2016.