If you’re coming to the end of your military service, it’s a big change in many ways. You could be changing where you live, what you’ll do and how you’ll spend your days.
One of the biggest changes, though, is financial. The military pays or subsidizes active duty personnel for many things, from housing to the PX. You may need to be much more aware of income and outgo, for example. You’ll need to become familiar with how much housing and groceries cost outside of military life, to name just two categories.
Here are six top tips about transitioning to civilian life that can help make the change as smooth as possible.
- Take Full Advantage of Help in the Transition
The military offers a great deal of help to people transitioning to civilian life. Take full advantage of it. There may be benefits and issues you need to think about that you’ll never know otherwise.
There is information available for people starting a new job, starting a business or obtaining further education via the Department of Defense Transition Assistance Program (DOD-TAP).
Get to know the benefits you can receive as a military veteran. If you want to buy a home, for example, either now or in the future, the Veterans Benefits Administration offers mortgages at a lower rate and with a lower required down payment than many other lenders. The Veterans Administration may also offer medical care at reduced rates.
- Keep Track of Your Daily Expenses
You need to know how much you spend and how much things cost. The best way to learn how much living expenses cost once you’re outside the military is to simply keep a running tally of everything you spend.
You can start with a free software like Mint or You Need a Budget, which both link to your bank accounts and allow you to enter your daily spending. You can also just buy a small notebook and use that. If you buy a cup of coffee on the way to work, for example, enter it.
Enter everything you spend in a day, every day, for a month or so. This eliminates two problems that can accompany the transition.
First, many people create a budget by guessing how much they spend in each category. The problem with that is that you can think you’ll spend $200 on groceries per month and you actually spend $400. Before you try to estimate how much you will spend, simply keep a tally every day of how much you actually spend, without judgement.
Second, it’s common to have to trim some expenses. But you need to know how much you spend before you can pinpoint the categories where that might be possible. You might think it’s the grocery budget, but find it’s actually the cup of coffee on the way to work that could save you $50 or more every month.
- Develop a Reasonable Budget
Once you’ve got at least one month of tallied expenses, sit down and make a budget. Divide it into categories: housing, food, entertainment, phone, internet, credit card bills, utilities, clothes and whatever else makes sense to you. Be realistic about how much you spend.
Be sure to keep on entering your expenses. It will let you know if you’re over or under the budgeted spending in any area.
If you need to cut back in some areas, think about how that could reasonably be done. Can you cook more food at home? That’s usually cheaper. Move to a lower-cost area? Cut back on utilities? Get a credit card with a lower interest rate?
- Get a Handle on Taxes
Your tax situation may be different if you’re moving to a new place. Some states do not have income tax or sales tax. Others do. State tax rates vary from low to high. Be sure to check out the state tax in your area or you may get a rude shock once your new employer starts withholding taxes. Your take-home pay could be much less than you were planning on.
If you are planning on starting a business or being self-employed, know that business owners and self-employed people need to pay estimated tax every quarter. The United States government requires this because it believes people should pay as they go, not just once per year. Many states require it as well. You can be charged penalties if you don’t pay estimated taxes.
- Start an Emergency Fund
Everyone should have an emergency fund. Why? Because life happens. If your car needs to be repaired or you need a security deposit for your home, you’ll need money. It may be more money than your paycheck or business income can cover that month. Many financial advisers think that people need to save the equivalent of three months’ salary as an emergency fund.
As you transition, save what you can per month. Check around to see what interest rates you can receive on your savings account. The higher the interest rate, the more you will receive in interest every month. Credit unions often offer better interest rates than banks or other lenders.
- Begin to Eliminate Debt
If you have debt that isn’t a mortgage, whether from credit cards or a personal loan, do the best you can to eliminate it one step at a time. The problem with debt is that making the monthly payment on it can eat into the income you have available. Make sure you have the lowest interest rate possible, as that can decrease the monthly payment and make total payment quicker.
There are two basic methods of paying down debt. The first is known as the debt snowball. With the snowball method, you pay the smallest debt first. So if you have a $200 credit card debt and a $500 credit card debt, you make the largest payment you can on the $200. Once that’s paid off, you increase payments on the $500 credit card bill. You free up your debt payments in a way that can make payments on all of it snowball.
The other method is known as the debt avalanche. With the avalanche method, you first determine the interest rate on your debt by reading the fine print that is found in the agreement the company sends you. They are required to tell you the annual percentage rate (APR). Then, target the debt with the highest interest rate. Put all the extra money you can toward paying it first. Then, once it’s eliminated, target the debt with the next-highest APR. This method likely saves you the most money over time.
Transitioning from military to civilian life if a big step! Congratulations. Be sure to take advantage of all the help and advice available so you are aware of issues and benefits. Keep track of your expenses and develop a reasonable budget, as many things cost less if you’re in the military than they do in civilian life. Check out what the tax rate is in your new area if you’re moving. Establish an emergency fund for the things life throws at us and pay down any debt you have as fast as you can, so it doesn’t eat your monthly income.