part 2 of an 8-part series
Financial stability can mean different things to different people. In part, the way you feel about money may affect your comfort level of financial stability. Your personal experiences will shape your thoughts on what you consider financially stable. This blog will focus on general benchmarks to help structure and focus goals to help you on your way to financial stability. This broad idea of financial stability will focus on three main parts, saving, credit/debt, and consumer protection.
1. Saving. Financial stability begins with knowing you can handle an unexpected expense with ease and not panic. Saving is the best way you can achieve this first (and arguably most important) goal. Unexpected expenses can range from a broken down car to a plane ticket home to visit an ill family member. A good rule of thumb is to start with $500 in a separate emergency or “rainy-day fund” account. It is important that you continue to add to this account regularly. It is good to start with a small goal of $500 and increase your goal over time, you should eventually set a goal to set aside 3-6 months of living expenses in this account. This amount would help you handle other bigger expenses like a PCS move, loss of spouse income, and transition out of the military. Simultaneously, you should also be saving for retirement. Even small amounts over time can really add up. The third part of this 8-part blog series will take a deeper dive into the importance of saving. The 4th part will discuss the Thrift Savings Plan, the military and government civilian tax-deferred retirement account.
2. Credit/Debt management. Another important component of financial stability is dealing with the delicate balance of maintaining and building good credit while not getting in over your head in debt. Most Americans have debt. In fact, the FINRA Foundation National Financial Capability Study Military Findings showed that 91% of military respondents reported having some type of debt. Having debt does not mean you are financially unstable. Those who handle debt well are most likely building good credit history and increasing their credit score. But not everyone is handling their debt well. Your debt to income ratio should be less than 43%. The first part in this 8-part blog series discussed Tips for Everyone to Maintain or Build Good Credit.
3. Consumer Protections. Protecting your assets, future investments and your personal information against scams, tricks, and traps is another important aspect of financial stability. Knowing your rights and consumer protections is a vital part keeping your finances in order. Servicemembers have some specific protections that are important to know about. One, is the Military Lending Act (MLA). The MLA offers protections against specific high-cost lending and caps the percentage rate and all fees to 36% APR. For more information click here. Second, is the Servicemembers Civil Relief Act (SCRA). The SCRA offers an array of protections and also and interest rate cap on qualified purchases. For more information on SCRA protections click here. Other agencies have military consumer protections as a major part of their outreach efforts and information. See the list below of those who work diligently to assure the military community knows their rights and protections.
Servicemember Consumer Protection Information
Council of Better Business Bureaus BBB Military Line – Consumer Education
Consumer Financial Protection Bureau – Office of Servicemember Affairs
Federal Trade Commission – Military Consumer Protection Day
FINRA Investor Education Foundation – Protect Your Money
Department of Justice – Military
Stay tuned for the next blog in our series: Pillars of Personal Financial Success: Committing to Routine Savings
By: Andia Dinesen, AFC ®
VP Communications and Operations
Association of Military Banks of America (AMBA)