August Commander's Corner
By Lt. Col. Erik Hoffman, Det. 157
/ Published July 31, 2014
MCENTIRE JOINT NATIONAL GUARD BASE, S.C. -- As commanders and supervisors, we are expected to involve ourselves in our Airmen's lives. The military encourages this because we know mission success is directly impacted by our lives outside of work. We strive to educate our Airmen on the dangers of drugs, alcohol and hazardous off-duty activities. We inspect where our Airmen live. We mandate motorcyclist registration, helmet use and aggressively monitor physical fitness. Yet, our emphasis on personal finance is very limited. Poor financial management detrimentally impacts lives just as severely as the other hazards we try to mitigate.
Lack of financial knowledge is not just a supervisor shortcoming. Finance is not a required subject in high school or college. Additionally, investment and retirement planning concepts are as appealing to most twenty-somethings as selecting a burial plot. Many might even consider them synonymous. Unfortunately, allowing our Airmen to educate themselves on their own timeline likely could cost them thousands or even millions in potential lifetime gains. This is a hear-me-now, believe-me-later topic that is worth emphasizing over and over until it is heard and understood.
In my experience, repetition and approachability are key. Try including a finance discussion when signing off in-processing checklists for your new members. Ask your Airmen how the Thrift Savings Plan and IRAs work. If needed, offer to explain them or point your Airmen to resources that can get them started. Again, repetition is key. Here are other items I make sure to cover:
1) Expenses can't exceed income on a regular basis. To avoid this, you need to accept a few truths. One, you must know where your money goes and that requires a budget. Two, once you know where your money is going, make adjustments and exercise the self-control to keep your spending in check. Budgeting will help you determine what discretionary income you have to invest. It is a waste of time to discuss the merits of investing, dollar cost averaging, IRAs, etc. if you don't have control of your personal finances. See the Airman and Family Readiness Center for budgeting examples and other tips.
2) Establish an emergency fund. Life is full of unexpected expenses. An emergency fund of $500 can help you keep from raiding your IRA or TSP when a fender bender requires you pay an insurance deductible or your water heater stops working. Retirement investments give you tax advantages in return for your long-term investment. Withdrawing money from them prematurely can result in heavy penalties.
3) Consider your debt. Investing for an eight or nine percent return usually doesn't make sense if you carry a 23% annual percentage rate on a credit card balance. Generally, it is best to pay off high-interest debt before investing. The most notable exception to this is when your employer makes matching contributions to company retirement plans like a 401k. In most military-member cases, TSP does not offer matching contributions.
4) Determine the purpose of your savings and when you need it for that purpose. For example, money for retirement (long-term) should be invested differently than money needed for a near-term home purchase. All mutual funds and banks have advisors available to help clients with allocation and diversification decisions.
5) Once you have the above under control, start saving and investing immediately! Compound interest is incredibly powerful for those disciplined enough to start early. Investing just $25 per month from age 20 to 68 (48 years) at 9% interest yields a future value of $168,511. If you wait just five years to start that $25 per month investment, you'll lose a third of its future value. It's useful to set up allotments into your investments so contribution management is automated. Retirement money should be diversified into tax-advantaged vehicles like Roth IRAs and TSP/401k. Money you need for other short-term goals should be diversified in investments with appropriate risk-return characteristics for the available investment timeline. Again, your chosen bank and/or mutual fund can advise you on what investments are appropriate.
While we can't control what our Airmen know before we begin supervising them, we can help educate them once they join our units. Help them learn proper financial management now so the positive impacts will benefit them and their families for their entire lives.
- Semper Primus