Military Transitioning: What to do Before Getting Out

The process of leaving the military can be daunting. Even more daunting is failing to find a job after leaving the military. Every military member in transition dreams of having a polished LinkedIn profile with several job offers lined up. However, it can take veterans up to a year to find a good paying job. According to this year's Employment Situation of Veterans report by the Bureau of Labor Statistics, a staggering 370,000 veterans were reported to be unemployed. Even if you don’t think that you be will part of this statistic, it’s important that you are financially stable before transitioning.

Save money like a pro

One of the most important subjects that you need to focus on before separating is your money saving goals. Pretend you've already transition, you're having issues finding a job, and your only source of money is your savings from the military. Did your heart jump a little? Mine did too, even if I was financially prepared. The scariness of the unknown was enough motivation to force me to save as much as I could during my enlistment.

Revise your monthly expenditures. Make a plan to save from six to twelve months’ worth of your average expenses. This will ensure that any financial hardship after you leave the military will be covered without worry.

Treat your savings account as if were a bill. Deposit a fixed amount into your saving account before you pay your bills and then set up an automatic withdrawal from your account to your savings. Having your money automatically taken out of your bank account when you get paid will ensure you always pay yourself first and never have to worry about manually putting money away. You can set up automatic deductions to be transferred to your saving account. Most, if not all, banks have an online presence and make automatic transfers to other accounts a breeze.

Search for Better Banking

Some military friendly banks are not so friendly with their fees and can have poor Annual Percentage Yields (APYs). Now that you are leaving the military, start looking at other financial establishments that will provide you with the best yields. Consider online banks for example; because these banks have no physical investments like buildings and building employees, they have less amounts of depreciating assets, accrued expenses and liabilities. Hence, they can offer you better yields and waive maintenance fees.

I currently use Ally bank for my savings account. Ally is a great example of an online bank. Their APY for their savings account is a whooping 1.90%! In contrast, USAA (a military bank) only offers 0.09% APY for their saving account.

Other things to consider when shopping for a new bank are account maintenance fees, ATM reimbursements and customer service. I'm not advertising for Ally, but I've had my share of banks and Ally bank so far has been the best institution I've ever banked with! They have no maintenance fees, and they have great customer service. I don't believe you'll miss your physical bank once you switch to a digital bank.

Contribute to a retirement plan

If you opened a Thrift Saving Plan when you first joined, and you’re making the bare minimum contribution, it’s time to change your strategy. The military matches contributions up to five percent. You should invest at least that amount, since it’s free money that will only make your investment grow.

If the TSP is not for you, consider opening a 401k. The 401k is not only a retirement asset, it will also help you with taxes annually since it is exempt from federal taxes.

Shop for a new credit card

If you have a credit card balance, and you have a good credit score, you may want to call your card company and ask if they can provide you a lower APR. Do some research on other credit cards and compare their APRs before choosing your card.

There are some credit cards that offer 0% APR for a limited time. Transferring your balance to one of these cards can save you a substantial amount of money in the long run and will make it a heck of a lot easier to save money. Keep in mind, some credit cards that offer balance transfers may charge you a transfer fee. Check your credit score and compare several cards before making your decision.

Pay off large bills

If you have a loan with a high interest rate and you have a TSP account, you can take out a general purpose loan. There are no specific restrictions to take out this loan and no penalizations for taking this loan out prior to retirement age! You can take up to half of your TSP contribution out. The TSP asks that you pay it back within five years, with a 1 percent interest. It’s practically a free loan! Keep in mind, you can only do this while you’re on active duty.

After you leave the military, however, any withdrawal from the TSP after you leave the service will be penalized. I recommend to first research better loan rates before you extract money from your TSP, as your money accrues interest like a savings account, and pennies today can be millions tomorrow.

Prepare for taxes galore

The military has given you benefits that you may not be aware of, especially if you enlisted fresh out of high school or college. Within your military paycheck, you have several tax exemptions, such as basic housing allowance, hazard pay, uniform pay, etc.

However, when you leave the military, you will no longer have these exemptions. Most, if not all of your civilian gross pay will be taxed. Even if you find a job that pays the same gross amount in the civilian world, the net pay will be significantly less because of state and federal tax withholdings. In addition, when you separate, you will have to start paying:

· State taxes

· Local taxes

· Dental insurance

· Life insurance,

· Medical insurance *after five years*

To add insult to injury, you’ll no longer get most of the military discounts that you’re used to, and you’ll no longer get front-of-line privileges on flights – pish posh!

Start planning your civilian life while you’re still in active duty and your life is still in order. If you’re married, get your spouse involved in the separation process. Schedule an appointment with a financial advisor early-on to help with your military separation; bring your spouse with you! It’s so important to have your partner on board because he/she/they will help you catch things you may have missed and will provide much needed moral support.

Focus on your savings and as always, stay frugal!