How do I plan ahead?
Creating and following a spending plan are essential tools in helping you establish financial control and direction. It is especially important to be prepared financially as the servicemember for whom you care separates or retires from active duty — generally a 12-month period from when the servicemember begins the medical evaluation board (MEB)/physical evaluation board (PEB) process.
Upon separation or retirement, the servicemember will experience several financial transitions, including the following conditions:
How do I develop a spending plan?
To minimize the financial impact of the reduction and interruption of pay, save as much income as you can and reduce overall expenses as much as possible to prepare for the servicemember’s separation or retirement. Start by evaluating the servicemember’s current income and expenses.
Use the “ Spending Plan Work Sheet” as a guide to help you determine how much is coming in, how much is going out, and where it is going. Look for areas that require special attention. It might help to refer to previous bank statements and credit card account statements.
How do I determine current net income?
Your spending plan should reflect net income — the amount the servicemember for whom you care currently receives after all deductions have been subtracted from his or her total income. Income sources may include the following items:
How do I project my spending plan?
Once you have identified your current income and expenses, the next step is to estimate the servicemember’s projected income and expenses upon separation or retirement. Because financial needs differ for everyone, carefully consider the potential sources of income and additional expenses the servicemember for whom you care might incur.
How do I save more and spend less?
When you have completed the “ Spending Plan Work Sheet,” compare current income and expenses against projected income and expenses. This will help you determine whether the servicemember’s anticipated resources are adequate to meet future income needs. If your current net cash flow is positive, save more to prepare for the reduction in income and additional expenses the servicemember for whom you care will incur upon separation or retirement. If your current cash flow is negative, cut expenses or increase income to reduce or eliminate debt. For example, you can:
If you become unemployed as a result of providing care for the servicemember and you are facing financial hardship, consult with a financial planning professional about withdrawing funds from your IRA, 401(k), and 403(b). Ask about early withdrawal fees and penalties.
How do I establish an emergency fund?
Make saving for an emergency fund a priority. Most experts recommend it equal three to six months of basic living expenses to help protect you from unexpected bills or unemployment. To prepare for transition to civilian life, build a very strong emergency reserve fund. In addition to maintaining three to siz months of basic living expenses, add any cash that might be necessary to prepare for a reduction in income over a period of time. The reserve should be increased by any known extraordinary expenses over the following 12 months. Keep the emergency fund in a liquid, easily accessible account such as a savings or money market deposit account.
How can I be aware of potential pitfalls?
Having an emergency fund will also help you prepare for other potential pitfalls that may occur following the servicemember’s separation or retirement. Some pitfalls include:
Review your financial situation at least once each year. Knowing where you are now financially, where you need to be, and what resources you have to make that possible will help you and the servicemember for whom you care prepare for the future.Top 5 Strategies
5. Be aware of potential pitfalls. Plan for the unexpected.
Get started today by clicking on one of the infographics below:
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