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                While part of the job when you serve in the military, deployments can be incredibly stressful.  They are stressful on the person deploying and stressful on those family members staying stateside.  Just as service members train when they are at their home base to be successful in their mission when they deploy, there are also steps they can take from a financial standpoint to prepare for deployments and to take advantage of some of the benefits only available to them when deployed.  Below, we discuss five common financial mistakes we see from deploying or deployed service members and how you can avoid making them. 

Mistake #1:   Not Having a Plan for Managing Finances When You Are Overseas.

Whether you are single or married, it is important to have a plan in place for managing your finances when you are going overseas and may not have access to your financial accounts.  You cannot wait until you are notified of a deployment to start putting this plan in place, it needs to be a living plan that your spouse or whomever you will be trusting with your financial management has access to and understands how to navigate.  What type of issues and documents need to be part of this plan? Well, that is going to depend on you and your current situation; but at a minimum, you will want to make sure your plan includes a will and a power of attorney.  A will is a legal document that tells the court how you want your assets distributed in the event of your death.  No one likes to talk about death, but you are not doing your loved ones any favors if you don’t properly plan for that as an outcome.  A Power of Attorney is a legal document that allows another person to legally act on your behalf.  A POA can come in many different forms, it can be specific; i.e. allow another person to sell your car in your absence; or it can be general, allowing another person to conduct just about any business on your behalf.  A POA can also be durable, meaning in the event you become incapacitated, the POA is still valid, or it can be springing, meaning it is not valid until a specific event occurs.  Your specific situation may dictate which POA is correct for you, your unit or base should have a legal office that you can consult with and help explain what these documents entail and help you in making a decision on which one is right for you and your family.  One important note about POAs is that they do not replace a will.  Once a person passes away, the POA is no longer valid, regardless of which type of POA it is.

Having a will and a POA in place can help ease the mind of both the deployed and any family back home, but to further ensure you are ready from a financial standpoint to deploy, there are several other steps you should take as well.  As much as possible, you should establish on-line access for your accounts.  Make a list of what bills you have to pay and their frequency, and where available, set-up these bills for on-line automatic payments.  If you handle most of the finances when at home, make sure you sit down with your spouse and review these accounts.  You will also want to review the beneficiaries on your bank accounts, life insurance, Thrift Savings Plan, and any other retirement or investment accounts.  Make sure the beneficiary listed is consistent with your wishes.  Having a plan in place is too important to leave until the last minute.  Just as you need to prepare yourself militarily for a deployment, you must also prepare yourself financially, so that when a deployment does occur, you can put some of your worries at ease.  For a thorough deployment checklist, check out the link I added at the bottom of this post from USAA.  They do an outstanding job of identifying documents and steps you can take now to prepare yourself and your family.

Mistake #2:   Not Utilizing the Savings Deposit Program (SDP)

                If you can find me a savings account right now that will give me 10% interest on my money, email me at john@greenandgoldfinancial.com as soon as you can, because that is an account I want to have my money in.  Well, if you are deployed to a Combat Zone, the DOD allows you to deposit money into an SDP account and earn 10% interest, compounded quarterly, on the balance in the account up to $10,000 (For comparison sake, as I write this article, on Magnify Money.com, they show the top savings account earning a whopping 1.25% interest).  Not taking advantage of this account is like walking away from free money.  The way SDP works is once you have been deployed in a Combat Zone for at least 31 days and are receiving Hostile Fire/Imminent Danger Pay, you are eligible to open up an SDP account.  You can open an account by visiting the finance office at your installation or FOB.  When you open the account, you can deposit a lump sum; allocate a percentage of your pay, or a combination of both.  Once you have opened the account, you can then manage it through My Pay.gov, and it will also show on your LES.  You can continue to contribute to the account while you are in the combat zone, but you will not earn any interest on a balance over $10,000.  The account will continue to accrue interest for 90 days after you leave the combat zone. 

                It is important to know that the money you deposit into the SDP account is generally not able to be withdrawn until you leave the combat zone.  Once you are out of the combat zone and no longer eligible to contribute to the program you can request through DFAS to have the funds withdrawn from your account and generally it will be electronically transferred to your account of record with DFAS.  If you leave it in there for the full 90 day post-deployment time frame, DFAS will transfer it back into your account once the 90 day period ends.  There are exceptions to this, if the money is needed due to a hardship or emergency, but expect to provide proof of the need in order to make a partial or full withdrawal while still in the combat zone.  Additionally, if the balance in your account goes over $10,000, you can request a quarterly transfer of the amount over $10,000 out of the SDP account and into your bank account of record.

                So, how do you approach this account?  First, understand that the SDP should not be viewed as an emergency account while you are deployed, because it will be hard to get the funds out of the account while still in the combat zone.  You should still have an emergency savings account that can be accessed to pay for unexpected expenses that occur while you are overseas.  If you do have a comfortable amount in a savings account, consider using some of that as a lump sum deposit into the SDP.  Next, identify any areas that you are currently spending money on now that can be reduced when you deploy as well as what your salary will look like when you start earning any combat zone related entitlements.  Use this projection to build a budget while deployed in order to identify additional amounts that you can deposit on a monthly basis into the SDP to build towards the $10,000 balance.  It can also help to develop a short term goal, such as a down payment for a new house, or paying off any debt, and using the SDP as a way to accelerate your savings toward achieving that goal.

Mistake #3:   Not Maximizing the Opportunities Available in the Thrift Savings Plan (TSP)

                Hopefully, as a member of the Armed Services you have opened a TSP account and are contributing to the account on an-ongoing basis.  While I am a fan of the TSP account for all service members, it offers additional benefits for those serving in a combat zone.  First, just a quick note that your elective deferrals to the TSP can be designated traditional (meaning pre-tax) or Roth (after-tax).  For traditional contributions, the amount you defer does not count towards your taxable income for the contribution year.  Instead, you defer paying the taxes until you withdraw the money.  If you choose the Roth election, you will pay taxes as you earn the money, but when you withdraw the money, your contribution and the earnings on those contributions will be tax-free, as long as the withdrawal takes place at least five years after you opened the Roth account and you are at least 59 ½ years old.  If both of those conditions are not met, the withdrawal amount could be subject to tax and penalty fees.  Now, here is where the combat zone treatment comes in.  The income you earn serving in a combat zone is tax-free.  Therefore, if you make Roth contribution deferrals from your tax-exempt combat zone pay, you essentially get triple tax benefits.  The salary is not taxed, your contributions to the TSP when you withdraw them are not taxed, and the earnings on your contributions to the TSP are not taxed when withdrawn either.  The chart below illustrates the tax benefits of Roth contributions to your TSP when made from tax exempt combat pay:

*Withdrawals must occur 5 years after first Roth contribution was made and you are at least 59 ½ to be tax-free

In 2017, there is an $18,000 elective deferral limit for contributions that an employee makes to their TSP account.  However, the IRS does not count any traditional contributions from tax-exempt combat pay towards the elective deferral limit.  Therefore, if you were in a combat zone for a full year, you could contribute $18,000 in Roth designated contributions to your TSP.  You could then also contribute an additional $36,000 as traditional contributions to your TSP account.  Now the additional $36,000 would be tax-exempt income when earned in a combat zone and would be tax-free when you withdraw it in retirement, but you would pay taxes at withdrawal on any earnings from those contributions.  So, you don’t get the triple tax-free treatment of Roth contributions from a combat zone, but putting $36,000 into a tax-advantaged retirement in one year can significantly increase your retirement savings account for the future.  Sounds great right, why stop at $36,000?  Well, the IRS does have a limit on the total amount of contributions that can be made to an eligible retirement plan in any one year, and in 2017, that limit is $54,000.  So, if you are contributing the Roth $18,000 that leaves another $36,000 for traditional contributions.  You might also be thinking that there is no way you can afford to save $54,000 in a year, and that certainly may be true, but it makes the creation of a financial plan and setting up a deployment budget that I talked about in Mistake #1 all the more important.  Find out what you can save, you may be surprised to learn that with a reduction in your expenses, and the additional money in your income that comes with serving in a combat zone, you have a real chance to jump start or significantly grow your retirement savings with some smart choices in regards to your TSP.  Serving in a combat zone is hard, these are benefits that the government has provided to you in recognition of your service, use them!

Mistake #4:   Spending the Money Before You Have It

                There can be a big temptation once you learn you are getting deployed to treat yourself to something nice before deploying, but you want to avoid putting yourself in a bad financial situation.  If there is one constant in the military is that things change, deployments can be delayed or cancelled.  Don’t plan on making big purchases with the expectation that you can pay it off with your deployment income.  We go back here to the budget and goal setting we talked about earlier.  If a new car or a family vacation is something you want to plan for, do your research, understand what that would cost and start saving towards that goal.

                If you are already in a precarious financial position and were planning on using the additional deployment income as a way to fix your situation and then find out the deployment is cancelled or delayed, don’t panic.  You do have some on-base and on-line services that can provide financial assistance such as your installation’s personal financial management program office and Military One Source.  In addition, there are non-profit groups that specialize in providing emergency financial support for service members.  Bottom-line; don’t spend what you don’t have.  Start looking at what you are making and spending now, and look at how those two things will change during a deployment.  Then you can start to examine your options (think SDP and TSP) and how you can utilize those options to improve your financial situation and enjoy your life post-deployment. 

Mistake #5:   Not Knowing Your Legal Rights

Lastly, understand your legal rights under the Service Members Civil Relief Act (SCRA).  The purpose of the SCRA is to provide legal protections for service members to help ease some of the burdens of deployment and allow service members to concentrate as much as possible on accomplishing their mission and returning home.  Some of the main protections in the SCRA include a cap on interest rates you can be charged by banks and credit card companies, protection against eviction, lease termination, and postponement of civil court and administrative proceedings.  In addition, some of these provisions apply not only to the deployed service member, but family members as well.  Talk with your unit or base legal office to understand what aspects of the SCRA apply to you and make sure your financial institutions are aware of your deployment so that you can then take advantage of these protections.  One of the most popular questions that come up when going on a deployment is what to do with your cell phone.  Whether for tactical reasons or simply because cell service is not available where you are deploying, bringing the cell phone along is often not practical.  This is addressed in the SCRA, and service members can suspend or terminate their cell phone service without paying any fees when they receive orders for over 90 days. 

These are five common mistakes I have seen and some I have made myself.  I kick myself when I look back on some of my earlier deployments for not taking advantage of the SDP.  Don’t make the same mistakes, educate yourself now on what is available to you, make a plan, and help secure your financial future today!

Have you made any of these mistakes yourself?  Have any other tips or lessons learned you would want to highlight?  Let me know on twitter @greenandgoldfp and help educate those deploying next!

Additional Resources:

Military One Source - http://www.militaryonesource.mil

USAA Checklist - https://content.usaa.com/mcontent/static_assets/Media/Deployment_Checklist_082009.pdf?cacheid=1283219606_p

DFAS SDP Page - https://www.dfas.mil/militarymembers/payentitlements/sdp.html

TSP 2017 Contribution Limits - https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/contributionLimits.html