September Commander's Corner
By Maj. David Bell, 169th Maintenance Operations Flight
/ Published August 17, 2016
MCENTIRE JOINT NATIONAL GUARD BASE, S.C. -- As I contemplated what to write for my first Commander's Corner article, thoughts of leadership, strategy and doctrine swirled through my mind. While these topics are vexing to some, most would skip the CC article completely and move on to the next page, thus defeating my intent of writing a provocative article which might benefit some of our members. Then I remembered Chief Master Sgt. (ret) Hotaling's visit to McEntire last year where he discussed the four pillars of resilience plus, his addition of a fifth pillar of fiscal resilience. Today, too many young people make unwise financial decisions which impede their road to financial security or freedom. Excessive student loans, purchasing more vehicle then one can afford and massive credit card debt can all delay saving on a down payment for a house or hinder saving for retirement. So how do we stay out of the financial doghouse? Knowledge is the primary tool and two areas of fiscal resiliency which demand special attention are personal finance and retirement planning.
Every one of us must possess a solid understanding of Money 101 and few simple rules that can be found in any personal finance books are:
1. Spend less than you earn. Sounds simple, yet many people have a hard time mastering this.
2. Start an emergency fund. Save up for that day when the roof on your house needs replacing or the transmission on your vehicle goes out.
3. Eliminate debt.
4. Skip the daily trip to Starbucks and brownbag your lunch instead of eating out every day. Eight bucks for a cup of coffee, really?
5. Avoid using credit cards unless you can pay them off in full every month.
6. Buy quality used vehicles and make them last. Spending 50k on a depreciating asset (another name for a new car or truck) unless you're a chief or colonel is the fastest way to rocket to the poor house. Preventative maintenance, such as scheduled oil changes and tire rotations, can add years to your vehicle's life.
Two mistakes many people make when saving for retirement is not starting early enough and trying to "time the market." Begin saving for retirement the day you start your first job because the most important advantages a young person has when saving for retirement are time and compounded interest. Albert Einstein was quoted as saying, "the greatest invention of mankind is compounded interest...he who understands it, earns it...he who doesn't, pays it."
Small, regular contributions (also known as dollar-cost averaging) to your 401K, Thrift Saving's Plan (TSP) or IRA can grow into considerable sums of money over time. If your company provides a matching contribution to your TSP or 401K, matching that contribution should be the minimum amount you contribute to your retirement account. Otherwise, you're leaving free money on the table.
"Timing the market" refers to buying and selling your stock or bond holdings based on fears or information you feel will affect upward or downward market trends. When the market drops or has a correction, many people fear losing their money and they panic and sell. This is a mistake. The only thing that has dropped is the price per share, not the number of shares you own. You only lose when you sell if the market is in a downward correction. During the recession of 2008, many people lost significant amounts of money by selling when the market was headed down and then missed out on the gains of the nine-year rally we've had since then. The market has cyclical corrections and over the long term, stocks have historically provided the greatest return on investment.
Airmen with long investing horizons would be best advised to keep the majority of their money in stock funds while those closer to retirement age should have the majority of their money in less risky holdings such as bond funds. As members of the military, we have access to the Thrift Savings Plan which is one of the better retirement savings and investment plans available. The TSP offers the same type of savings and tax benefits that many private corporations offer their employees with the additional benefit of exceptionally low fees and expenses as compared to other defined contribution plans.
Take charge of your retirement planning and don't rely on Social Security to be your primary source of retirement income. By the year 2034, the payroll taxes collected by the U.S. Government will be enough to pay only about 79 percent of scheduled Social Security benefits.
Fiscal resilience starts with improving our financial literacy through basic practices such as tracking household expenses and saving for retirement. Poor fiscal resilience can lead to relationship problems, loss of security clearance or worse, the loss of your job. Start today, educate yourself and plan your path to financial prosperity.