8 financial tips to ease the transition from military to civilian life


Whether you’ve been in the military for four years or are transitioning into retirement after 20 or 30 years, it’s not a decision to be taken lightly, and it’s certainly not one to be put off.

The transition from military service to civilian life is more than just a career change. It’s one of the most important transitions you can make in life and one that will have a significant impact on your bank account and net worth for years to come. Whether the impact is positive or negative is in your hands.

Here are eight things to consider before taking the plunge:

1) Know what you are bringing.

As a member of the service, your salary is very likely to be made up of taxable and non-taxable income. You have your salary, but there is also a basic housing allowance, a basic subsistence allowance, special remuneration and other allowances that make up your net salary. When my husband was deployed in 2013, there were six different positions that made up his income during the months he was away and four positions when he was home.

It is imperative that you understand what you actually earn, what you pay federal and state taxes on, and what that equates to on the civilian side as fully taxable wages. You could earn $50,000 a year, but depending on the taxed income level, that could equate to a $60,000 a year job.

2) Know where your money is going.

Everyone hates the “b” word, but if you don’t have a family budget, now is the time to create one. In a time of transition, Ryan Guina, founder of themilitarywallet.com, indicates that having a budget will help you identify areas where you can reduce fixed expenses. The more you can save on expenses, the more cash you’ll have and less stress during the transition. Having spent nearly seven years in the
before leaving in 2006, Guina advises minimizing car loans, housing expenses, and even opting for cheaper car insurance if you can find it.

3) Eliminate or reduce debt.

If you’ve racked up a pile of debt and you’re already overworked, it will add extra stress to an already big life rush. In the months (years if possible) before your transition, work on reducing your debt.

Remember that not all debt is created equal and you will need to tackle the highest interest rate debt first, such as credit cards. Even though these balances are smaller compared to other debts, with the higher interest rates they cost you the most. Integrate it into your cash flow to take advantage of the Methods of Debt Avalanche or Debt Snowball to repay these balances.

4) Watch your taxes.

During your service, you can be a resident of Texas, a state with no income tax while stationed in California, a state with an income tax, as was the case for my husband. This meant he was not subject to California income tax during his service, but after deciding to make San Diego our home after his transition, we were faced with a significant increase in taxes on the state revenue.

Are you currently a resident of a state that does not have income tax or a state that does not tax military pay? Where do you plan to move once your transition is complete? What is the state tax rate? Does this mean that you will have to seek a higher salary in order to fully replace your income? If you are retiring, have you considered any of the several states that do not tax military retirement income?

The bottom line here is how your take home pay will be affected and whether you need to increase or decrease your lifestyle or income goals when making this move.

5) Don’t mess with your TSP (again).

Guina recommends leaving your savings plan funds where they are until your transition is behind you, and only then considering whether the transfer to your new employer’s retirement plan is a good option.

Although there are fewer investment options available in the TSP plan, they come with some of the lowest fees, making them more competitive with some employer-sponsored pension plans, whose funds can incur expenses of more than 1%. Be sure to consider investment options and expense ratios when making the decision to manage your TSP.

6) Build your emergency savings.

If you don’t have a hidden rainy day cushion, start building one. With a major life event on the horizon, aim to set aside six months of expenses for any unforeseen events that may arise, such as extended unemployment, moving expenses, car repairs and more. The last thing you need is to find yourself without a savings cushion in an already difficult time to fully prepare.

7) Build your network.

While the army offers a Transition Assistance Program (TAP class)when it comes to figuring out who you want to be and what you want to do on the other side of your serve, that ball is in your court.

Guina says the biggest problem he had during his transition was lack of purpose. He recommends connecting with your local community whenever you can. Whether it’s volunteering, going to church, or joining the reserves, you’ll have a network of people to connect with and a part-time income to rely on.

It may be uncomfortable at first, but if you’re looking to land a job on the other side, look for local networking events in your area. Keep an eye out for veteran recruiting events. Update your
profile and resume to include leadership roles and duties performed throughout your military career. One of the biggest things my husband overlooked was the impact quantification can have on your resume. How many people have you referred? How many hours have you spent on a project or in training? What budget did you manage? Numbers translate well when it comes to demonstrating your leadership skills and abilities. Be sure to highlight them when looking for a job.

8) Practice your negotiating skills.

At this point in your career, you might be used to graciously taking whatever numbers are thrown at you, because there isn’t much wiggle room. However, when it comes to the civilian sector and the future growth of your salaries, negotiation is the key. Arm yourself with relevant data and statistics about the position you’re interviewing for or talk to others in your industry to understand what the ideal compensation would be. Make sure you feel comfortable showcasing your skills and experience before you have the salary conversation. If necessary, practice with a significant other or partner so you know where to focus the conversation when working towards a desired income range. Also, always aim a little higher than is comfortable so you can adjust if necessary.


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