HANSCOM AIR FORCE BASE, Mass. – April is financial literacy month. We sat down with Joe Chesloski, a personal financial counselor who has more than 20 years of business and finance experience. We asked him to talk about the biggest mistakes service members make with their money. Here is what he had to say.
Not being cautious enough with credit
Credit scores are calculated and reported by three private companies, Equifax, Experian and Transunion.
These three credit bureaus have never revealed exactly how they calculate an individual's credit score. However, they do take into consideration how many loans a person has, how long those lines of credit have been open, and how the borrower has managed to use and pay back the money they borrowed.
After adding up all the factors, these agencies assign a score that can range from 300 (the lowest possible score) to 850 (highest possible score).
Maintaining a high credit score is essential if you want to get the best interest rate, Chesloski said.
Banks, credit unions and credit card companies all examine credit scores to determine if a customer will be able to pay back the money they borrow.
"When you buy a house, a car, or even take out student loans, all they do is look at that formula and say, 'OK, this person is medium, high or low risk,'" said Chesloski.
For example, if a Soldier is looking to buy and finance a new car, and has a credit score of 800, they are more likely to pay a lower interest rate. As a result, the total cost of the vehicle will be less and monthly payments will be lower.
The opposite would hold true for another Soldier with a 500 credit score.
"I've seen people pay anywhere between 18% to 20% interest rate on a car," said Chesloski."It puts them in a really challenging position."
In order to avoid accumulating too much debt, which can negatively affect a credit score, Chesloski recommends limiting the number of credit cards service members carry and emphasizes paying off existing debt as soon as possible.
Not taking advantage of retirement saving programs
At the start of their military career, most service members open a Thrift Savings Plan account. However, many don't necessarily know how to use the retirement program to the full advantage, said Chesloski.
While troops may be making regular contributions to their TSP account from their paychecks, they may not be getting the highest yield on their hard-earned money.
"They don't know where the money is,” Chesloski said."In most cases it automatically defaults to the G-Fund. There, it only earns about 2%, so it's not making the kind of return they need to retire on.”
The TSP offers six different investment options, each one with different levels of return based on a service member's goal.
"I usually sit down with Soldiers and Airmen to help them develop a strategy based on how they feel about the risk,” said Chesloski."Based on that, we make some picks and then they can leverage the money and make it work for them.”
Making sure that troops are in the right fund has significant financial advantages.
"You may be going from 2% [in the G Fund] to making anywhere between 6% to 8% or even more depending on the market,” Chesloski said."Over the long haul you want to diversify the account. You don't want all the money in one place.”
In addition to contributing and directing funds properly, it is also important to be cognizant of matching contribution programs provided by military, government and civilian employers.
"In your private sector job, take advantage of the match they give you,” said Chesloski."You could be picking up anywhere from $1,200 to an extra $2,000 a year.”
Not having a plan in place for when you are mobilized.
One of the realities of being in the military is that at some point during a career, service members may have to travel a long way from home for extended periods of time. Making sure that finances are in order before they depart is critical.
"Put a strategy in place before deploying,” said Chesloski.
Before getting on the aircraft, ship or vehicle that will whisk them away, service members should put all their bills on autopay, said Chesloski. This includes mortgages, student loans, car payments and credit cards.
Along with scheduling payments, troops should contact creditors about taking advantage of the Service Member Civil Relief Act.
"Taking advantage of the SCRA act means you can get your interest rate bumped down to 6% on those accounts when you leave,” said Chesloski.
Before they depart, service members should have built up an emergency fund that can be accessed in case of some unforeseen expense.
"Pay yourself first,” said Chesloski."Allocate some funds into a savings account in the event you have a medical bill or car repair come up as opposed to putting it on a credit card.”
Last but not least, Chesloski recommends appointing someone to take care of finances during a deployment in the case something does come up.
"Set up a will and appoint someone as your power of attorney to handle legal and medical matters,” Chesloski said."Also, designate beneficiaries for your TSP and private 401(k) accounts.”
The military provides financial support and counseling for troops and their families. If you or someone you know is having money issues, have them reach out to their assigned personal financial counselor.