Braenen Ross Transitioning from military to civilian life brings many new challenges. One of the biggest challenges is how to manage your finances effectively, so you can thrive in civilian life.
With a solid plan in place, veterans can build a secure future by making smart money decisions.
This article offers financial planning advice for veterans who are navigating this stage of their careers, while providing some proven money tips along the way.
The Military-to-Civilian Transition
For many veterans, the move from military to civilian life means leaving behind a structured system of benefits and allowances.
In your post-military career, you have to learn how to manage your own income, expenses, and savings. Effective financial planning for veterans is not just about budgeting. It’s about understanding your needs and objectives, and taking proactive steps to meet them.
So let’s explore the basics of financial planning for veterans, with some practical money tips to help you make a smooth transition.
Unique Financial Challenges for Veterans
When serving in the military, you might have enjoyed a number of financial benefits, ranging from full medical coverage to housing allowances.
But once you transition from military to civilian life, many of these support systems can change or disappear entirely.
Transitioning veterans can encounter the following challenges:
- Changes in Income: Shifting from a steady military paycheck (with allowances) to a civilian salary might require some adjustment.
- New Expenses: Civilian life may bring additional costs for healthcare, housing, and everyday living that were not a major concern during military service.
- A New System: Navigating civilian financial systems, such as 401(k)s, IRAs, and different types of insurance, can be overwhelming at first.
The good news: Many organizations offer financial advice and resources for veterans. For example, Veteran Saves and Military OneSource both offer valuable resources.
Financial Considerations for Transitioning Veterans
Transitioning from military to civilian life is not only a career change—it also means rethinking your entire financial landscape. Here are some key points to consider:
- Budget Adjustments: Your civilian income might be structured differently than your military pay. Begin by tracking your new income and expenses to create a realistic budget.
- Health Insurance: When you leave the military, you may lose access to programs like TRICARE. Research new healthcare options early to avoid coverage gaps.
- Tax Implications: Military pay often includes tax-free allowances that civilian salaries do not. Adjust your tax planning accordingly.
- Retirement Planning: If you have a military pension or Thrift Savings Plan (TSP), you’ll want to integrate these with civilian retirement accounts, such as a 401(k) or IRA.
By addressing these areas early, you set the stage for a stable financial future.
How to Create a Solid Financial Plan
It’s wise to create a comprehensive financial plan when transitioning from military to civilian life. Here are some of the core components to focus on:
1. Budgeting and Saving
Begin by evaluating your monthly income and expenses. Set realistic saving goals. Start small if needed, and gradually build an emergency fund that covers 3 to 6 months of expenses. This cushion can be invaluable during times of transition or unexpected expenses.
2. Investing and Debt Management
Consider how to manage any existing debt you have, while planning for long-term investments. Whether you’re looking at stocks, mutual funds, or retirement accounts, make sure your investment strategy aligns with your goals. Seek veteran financial advice if you need help balancing debt repayment with saving.
3. Insurance Needs
As you transition, review your insurance coverage. Veterans may have access to specialized insurance products through programs like Veterans Group Life Insurance (VGLI) or Service-Disabled Veterans Insurance (S-DVI). Ensure you have adequate protection going forward.
4. Retirement and Future Planning
Don’t rely solely on military retirement benefits. Supplement your pension with personal retirement savings, and consider rolling over your TSP into a civilian retirement plan to maximize growth potential over the long term.
Actionable Money Tips for Veterans
We’ve covered some important financial planning concepts for veterans who are leaving the military. Now, let’s switch gears and look at some actionable steps you can take.
Here are some proactive money tips for veterans entering civilian life:
1. Perform a comprehensive financial health check.
Take a deep dive into your finances by reviewing bank statements, credit reports, and any existing debt documents. Evaluate your current cash flow and list your assets and liabilities. Knowing exactly where you stand is essential for building a plan that works for you.
2. Create a transition budget.
Once you understand your basic income and debt situation, you can evaluate transitional costs like job search expenses, moving costs, or temporary changes in living arrangements. Budgeting tools and apps (e.g., Mint or YNAB) can help you track spending and identify areas where you might trim unnecessary expenses.
3. Build or expand an emergency fund.
Transitioning to civilian life can bring unpredictable expenses. An emergency fund can help you cover these bases. Try to build an emergency fund covering 3 to 6 months of living costs. Consider keeping it in a high-yield savings account so you can earn interest while keeping your money easily accessible.
4. Look into the VA home loan program.
If you’re planning to buy a home after transitioning to civilian life, consider using the VA loan program. It allows you to buy a house with no money down, by financing 100% of the purchase price. You can also avoid paying mortgage insurance through this program.
5. Maintain good credit going forward.
Get a free copy of your credit report from the major bureaus and check for errors. Consider setting up automatic payments on your credit cards or loans to build a positive credit history, which is key for major purchases like a home or vehicle.
6. Plan for tax changes.
The tax implications in civilian life can differ significantly from what you experienced in the military, especially if your military pay included non-taxable allowances. Consider meeting with a tax professional who understands the unique circumstances of veterans.
7. Automate your savings and investment plans.
Once you’ve created a revised budget, consider using automatic transfers from your checking account to savings and investment accounts. This “pay yourself first” strategy helps you consistently build toward long-term financial goals, such as retirement or buying a home.
8. Join financial literacy workshops or groups for veterans.
Knowledge is a powerful tool when it comes to financial stability. Attend local or online financial literacy workshops that cater to veterans. Peer groups or veteran networks can provide shared experiences, success stories, and insights into what strategies have worked for others.
Additional Resources You Might Find Helpful
Government Resources:
- U.S. Department of Veterans Affairs (VA): Offers information on benefits, healthcare, home loans, and financial assistance.
- VA Home Loan Program: Provides information and resources specifically for veteran home loans.
- Small Business Administration (SBA) – Office of Veterans Business Development (OVBD): Offers resources and support for veteran entrepreneurs.
Non-Profit and Support Organizations:
- Veteran Saves: A campaign by the Consumer Federation of America that encourages veterans and military families to save money and build wealth. Learn more at www.veteransaves.org.
- Military OneSource: A Department of Defense-funded program providing a wide range of resources, including financial counseling and education, to military members, veterans, and their families. Learn more at www.militaryonesource.mil.
- National Foundation for Credit Counseling (NFCC): Offers access to certified credit counselors who can help with budgeting, debt management, and financial education. You can search for member agencies by zip code. Learn more at www.nfcc.org.
- Operation Homefront: Provides financial assistance and other support to military families and veterans in need. Learn more at www.operationhomefront.org.
- Wounded Warrior Project (WWP): Offers various programs and services, including financial wellness programs, for wounded veterans and their families.
- The American Legion: Provides various forms of assistance to veterans, including financial aid through its Temporary Financial Assistance (TFA) program.
- Veterans of Foreign Wars (VFW): Offers financial grants and assistance to eligible veterans and their families. Details at www.vfw.org.
Transitioning from military to civilian life is a major life change that requires careful planning, especially when it comes to your finances. By developing a personalized financial plan, leveraging available veteran financial resources, and following practical money tips for veterans, you can ensure a smooth transition and build a stable financial future.
