This time it’s different.
How many times have you heard that claim? Consider the tech boom of the late 1990s. Americans were told that we had entered a new golden age built on the internet and incredible technological breakthroughs. Some investors became rich overnight while new tech companies sprang up like weeds after a summer rain. Life was good. What happened? The boom turned into a bust, riches turned to ruin and Americans learned a hard and expensive lesson about gambling in the stock market. They learned that things really weren’t different this time.
Fast forward a few years. This time, instead of stocks, folks were convinced that the housing market was the new way to wealth. Houses were being flipped more quickly than pancakes at IHOP. You know what happened next. Once again, we learned the hard way that it really wasn’t different this time.
Well, believe it or not, we now find ourselves in a new riches-to-ruin situation. And I am convinced, this time it really is different.
Let’s face the facts. Our government is bleeding red ink, and deficits are predicted to continue for many years. At the same time, my 80 million fellow Baby Boomers are just starting to put pressure on Social Security, Medicare and Medicaid. This isn’t my call for political action. Rather, it is my call for all of us to accept personal responsibility for our future and take action. Each of us holds the key to our financial success. For younger military professionals and federal employees this means starting a financial plan; not tomorrow, not next week, not after your vacation, but now.
The financial planning process need not be complicated or confusing. First Command recommends a commonsense approach. We call them the three cornerstones: savings, insurance and investments.
Everyone needs a rainy day fund for the unexpected financial emergencies that we all face. The amount you need is based on past experiences or how much you need for your personal peace of mind. For most federal employees and military families, a rule of thumb is three months of normal living expenses. Along with emergency money, financially-savvy consumers pay for big ticket items with cash rather than using credit. The Christmas holiday season is just around the corner. Tucking away cash throughout the year can help you avoid the post-holidays hangover of credit card debt. If you are already in debt, there is no time like the present to cut up those credit cards and scrub your budget. If you haven’t been able to live within your means or need accountability, consider using the serves of a financial advisor who isn’t “emotionally attached” to your money and who can serve as a coach.
To many folks, insurance is a boring topic; however, the insurance cornerstone demands periodic review and action. Insurance provides risk protection for you, your loved ones, assets, home and valued possessions. A few dollars in premiums can provide hundreds of thousands of dollars in income tax-free protection. Federal employees should ask themselves if they have adequate coverage through their Federal Employees Group Life Insurance (FEGLI), and military people should take a look at their Servicemember’s Group Life Insurance (SGLI) coverage. Has anything changed in your life to include marriage, divorce, or birth of a child? Have you seriously considered how a loved one would cope financially without you? This same review of your Federal Employees Health Benefits (FEHB), TRICARE or other healthcare benefit program is a must to ensure that you have the right coverage.
(Note to federal employees: Remember that you have a chance to adjust your FEHB during the open season which starts in November. Every month I meet with federal employees who discover that disability income insurance is one of their weakest employee benefits. Feds are calling us, wanting to get commercial coverage which will guarantee an income if they are disabled. After all, if you don’t have an income, you can forget about achieving your financial goals and dreams. A periodic insurance check-up with your agent or advisor is just as important as your physical check-up at the doctor’s office.)
The third cornerstone – long-term investments – is the part of a financial plan that usually gets the most attention. Feds, military professionals and state employees are among a shrinking number of Americans who can still count on a defined retirement benefit, or annuity. Do you know how much you can expect to receive in a monthly annuity when you retire? Your annuity, Social Security, Thrift Savings Plan (TSP) – these programs are designed to provide you with a retirement “pay check.”
The other side of the retirement coin is knowing how much money you’ll spend monthly when you retire. Think about this: What day of the week do most people go shopping or dining out? The answer is Saturday. Well, when you retire, every day is Saturday. How will you spend your free time? And will you have invested enough so that you’ll also have a “play check”?
To paraphrase an old Chinese proverb, the best time to plan for your financial future was 20 years ago. The next best time is today. All of us, especially younger Feds and military professionals, must take responsibility for their future financial well-being. A First Command Financial Advisor can help you get started. These knowledgeable and trustworthy professionals understand military and federal employee benefits, and they want to listen and understand your concerns, goals and dreams is simply a smart idea. First Command can help you create a financial plan that works for you. Remember, this time it really is different!
Bob Hill is a Registered Principal and District Advisor at First Command Financial Services, Inc., in Arlington, Va.
First Command Financial Services, Inc. is the parent company of First Command Financial Planning, Inc. (Member SIPC, FINRA) and First Command Bank (Member FDIC). Financial planning services and investment products, including securities products are offered by First Command Financial Planning, Inc. Insurance products and services are offered by First Command Financial Services, Inc. Banking products and services are offered by First Command Bank. Securities products are not FDIC insured, have no bank guarantee and may lose value. In certain states, First Command Financial Services, Inc. is a separately registered domestic corporation and does business in California as “First Command Insurance Services.” A financial plan, by itself, cannot assure that retirement or other financial goals will be met.