Spending Plan and Top 5 Strategies

Spending Plan

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:

  • A significant reduction in pay: The most the servicemember for whom you care will receive in retirement is 75 percent of his or her base pay.
  • A possible lapse in pay between the servicemember’s last active duty paycheck and his or her first retirement paycheck or VA disability compensation — generally a minimum of 45 days.
  • If the servicemember separates or ends term of service, he or she may not receive retirement pay. As a result, you might have to use your savings until you obtain VA www.benefits.va.gov and/or Social Security benefits www.ssa.gov/woundedwarriors, which could take up to one year.
  • An increase in expenses.

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:

  • pay off high-interest-rate debt first to reduce monthly expenses;
  • contact lenders about the possibility of renegotiating higher-interest-rate loans to lower interest rates;
  • switch to a low-interest, no-annual-fee credit card;
  • switch to a less expensive phone plan;
  • use a less expensive Internet service provider;
  • dine out less often; or
  • monitor and adjust your spending, as needed, by
    • saving for purchases you cannot fit into your budget,
    • stopping charging unless you can pay credit card account balances in full each month, or
    • waiting for sales and use coupons.

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:

  • VA claims, even in the Integrated Disability Evaluation System, might not be settled for more than a year.
  • The servicemember for whom you care may not receive a decision from Social Security for years.
  • The application process for a caregiver’s stipend might be delayed several months:
    • According to the IRS, VA caregiver stipends are not earned income so the caregiver cannot contribute to a retirement fund if the caregiver stipend is the his or her only income.
    • If you are injured while performing the duties of a caregiver, you are not eligible for disability because the caregiver’s stipend is not earned/taxable for Social Security or disability purposes. Within 30 to 90 days of you, the caregiver, becoming disabled, you will lose CHAMPVA medical coverage.


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

1. Plan ahead. Be prepared for the reduction and interruption in the servicemember’s pay.

2. Develop a spending plan. Compare current income and expenses against projected income and expenses.

3. Save more, spend less. Look for ways to save income and reduce expenses.

4. Establish an emergency fund. Save three to six months of basic living expenses.

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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