Preparing Finances For Deployment: A Guide For Service Members

Members of the armed forces in the U.S. have a special set of issues to contend with when they receive their deployment orders, especially if they are to be sent to a combat zone. The U.S. military spends billions of dollars and countless hours of manpower preparing the troops for the physical, mental and emotional rigors of combat. However, many service members fail to take the necessary steps to get their personal finances in order before they ship out. When it comes to preparing for deployment, legal and financial issues are often shunted to the back burner, especially by younger service members who may not consider this matter important. Others are often unaware of the wealth of benefits available for those who serve Uncle Sam in uniform. (For related reading, take a look at Benefits for Members of the Armed Forces.)

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But while financial readiness is probably just about the easiest aspect of preparing for deployment, it is one of the hardest to achieve for service members once they are overseas. Trying to sign, send and/or receive documents or make major legal or financial decisions in a combat zone can be nearly impossible for many troops, especially if they are unable to communicate with anyone back home. Furthermore, service members who fail to manage their finances effectively can lose or be denied a security clearance or face other disciplinary action in some cases. But combat deployment can present a significant financial opportunity for disciplined service members who plan ahead and take advantage of their military benefits. Those who follow the instruction in this article can look forward to a homecoming of financial prosperity and liquid assets that they can use to spend time with their families and loved ones.

It's Your Life
Service members who are sent into combat risk life and limb for their country. It is therefore vitally important that they adequately insure themselves before heading into the line of fire. Anyone who serves in a combat zone should seriously consider purchasing at least the smallest amount of coverage available ($50,000) on themselves to cover funeral or other incidental expenses. However, the life insurance coverage that is provided by the U.S. military is among the best in the world. Service members of any age can buy $400,000 of term coverage for just $27 a month, regardless of their health (as of 2011). Group disability coverage is available as well. However, these benefits are only available for those who are on active duty. Those who need coverage beyond their terms of service should consider supplemental coverage. There are several carriers who offer competitive policies that are custom-tailored for members of the armed forces. Care should also be taken to ensure that Tricare health benefits are in order, as an oversight here can have disastrous consequences. If a medical emergency arises for which the service member does not have coverage, it may not even be possible to reach the member to make a decision about what to do next.

Build Your Savings Program One Deposit at a Time
The Savings Deposit Program (SDP) is another benefit that is available to members of the armed forces who serve in combat zones. This program pays a guaranteed rate of 10% on all money deposited into the plan for the first year that the participant serves in a combat zone. The interest paid is taxable and compounds on a quarterly basis. However, no more than $10,000 can be accumulated to earn interest in this account. Those who leave the combat zone or participate for one year must transfer their account out of the program within 90 days (those who serve in combat zones for more than a year can leave their money in the plan until they leave, but interest will stop accruing after one year).

The Service Members' Civil Relief Act
The SCRA was enacted to provide additional legal and financial protection to members of the armed forces. Service members can present a copy of their enlistment papers along with a letter of instruction to any creditor with whom they incurred a debt before they joined the military and have the rate of interest charged reduced to 6%. Any service member who is deploying should also send these to any other creditor who has loaned him or her money since joining the service, as many creditors will extend this benefit to a deploying service member even if the debt was incurred after enlistment. If these steps have not been taken already, they should certainly be done prior to deployment. This applies to most types of debt, including mortgages, credit cards and consumer debt. The SCRA can also authorize a stop on any legal proceedings that service members are involved in when they receive their deployment orders, such as divorce, lawsuits, evictions, etc. It also allows service members to break leases on cell phones, cars and rental agreements without penalty. These proceedings must be suspended until the service member returns from active duty. Obviously, this can be an enormous boon for those who face repossession or eviction, as the pay received during deployment may be used to clear up these matters.

Fortify Your Position
Service members who are sent into combat zones are eligible to receive additional tax-free hazardous duty and combat pay on top of their regular earnings. However, this type of pay may not be counted in the Earned Income Credit computation, if doing so will reduce the amount of credit for which the service member is eligible. Some service members may also continue to receive at least some level of compensation from their civilian jobs during their tour of duty. This increase in pay can be a golden opportunity for smart combat zone participants to pay off debt, accumulate money in the SDP or other savings account and improve their credit scores. Astute service members who save their additional earnings during an 18-month tour of duty can substantially improve their cash flows and balance sheets in the time that they are away.

Covering Your Flank
Service members who participate in the benefits listed above but neglect to put their legal affairs in order are still setting themselves up for failure. Service members have a wealth of free legal services available to them through JAG and Military OneSource; these resources should be thoroughly explored by anyone who has received their deployment orders. Wills and other legal documents need to be created or else reviewed and updated if necessary. The beneficiaries on life insurance policies and other assets should also be current. For married service members, this should typically be their spouse. Those who are young and single may want to consider naming their parents as beneficiaries. (To learn more about wills, take a look at our Estate Planning Tutorial.)

Home-One, Do You Copy?
Married service members often struggle with coordinating their finances during periods of deployment. In some cases, it may be better for the service member to open a separate checking account once they are overseas in order to better manage his or her personal finances. More important is that couples be able to communicate honestly about household finances and how money will be handled by the domestic spouse. This is especially critical if the service member is typically the one who makes the financial decisions and pays the bills for the household. An automatic bill payment system may need to be set up, and the spending habits of the spouse who stays behind may also need to be addressed. A common story heard in the military is when a service member returns home to find that his or her spouse has either failed to pay critical bills or run up substantial credit card debt that may take months or even years to repay. (See Save Money By Tracking Your Spouse's Spending for more on the topic.)

Conclusion
Service members who are preparing for deployment into combat should put their affairs in order before they leave. Failure to do so can have a substantial impact on the financial well-being of the service member, and possibly result in disruption of their military careers in some respects. Those who take a day or two to review their financial and legal situations and plan accordingly can then leave these affairs in the backs of their minds and focus on performing their duties effectively. For more information, service members can contact their DFAS office, Family Readiness Group Assistant or the Personal Financial Counselor who has been assigned to their unit or brigade.

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