Financial Steps to Take When Leaving the Military

8.25.2022 | Category: Article

Your service to our nation may be complete, but a world of opportunity is waiting for you. If you’re transitioning from military service to civilian life, it’s important to know the financial steps needed to make the move more seamless. 

Here are eight financial moves to make to help you navigate big purchases like health care and housing, as well as changes to how you earn an income.

Start Saving for an Emergency Fund

During this time of change, it’s important to use the income you generate as a service member to start building a healthy emergency fund. A good rule of thumb for saving for an emergency fund is to save at least three months of income or three times the total amount of all your expenses. 

If you feel like you don’t have enough disposable income to reach this goal, don’t fret. Any little bit counts. Start by contributing what you can afford after other all other bills and expenses. If you’re smart with your money, consider opening a separate savings account with a high-interest rate, like a Money Market account, to help you earn interest while you save. 

Review Your GI Benefits

According to the U.S. Department of Veterans Affairs, if you were awarded Post-9/11 GI Bill education benefits, this can help pay for some or all the costs for school or career training. To be eligible for Post-9/11 GI Bill benefits you must have applied and received a decision on your application. Once you’ve received approval, you can return to the U.S. Department of Veterans Affairs website to review your statement and the amount you’ve accumulated during your service. 

Using your GI Bill benefits may just be one of the most financially savvy moves you can make. You can use the benefits to attend college to pursue a new career path, job training, licensing and certification, on-campus living costs, and more. 

Create a Resume and Consider Securing a Job 

One of the best things you can do for your financial future after leaving the military is to find a new job. Creating a resume that highlights the skills you learned during your service and how they can translate to a civilian role will be key. 

Another important job search tactic that you will need to use is the power of networking. Be sure to leverage your vast community of veterans to learn about open roles, company culture, compensation, and benefits of civilian employment opportunities. Use that networking to review your resume, practice your interviewing skills and land a job that’s a good fit for you. 

According to HireMilitary, a prominent military employment organization, transitioning from the military to the private sector can feel more difficult than military service itself. Cultivating a strong network to support the transition can be helpful in making the transition much easier. 

Secure Healthcare

Health coverage is an important and expensive budget item. But as a member of the military, there are ways you can minimize its impact to your balance sheet. And while you didn’t have to think twice about healthcare while enlisted, it will be an important step to take to avoid medical debt in the future. 

First, understand the healthcare and insurance options you could be eligible for. If you’re retiring rather than separating from the military, you’ll be eligible for TRICARE. However, if you’re separating, you will not have access to TRICARE as your insurance provider. Any health provider that accepts Medicare should also accept TRICARE. Be sure to contact providers you plan to see and make sure they accept it so you don’t run into any unexpected bills. 

If you’re not eligible for TRICARE, you will need to find your own healthcare insurance. This is typical for veterans who didn’t serve long enough to qualify for TRICARE. If you fall into this camp, there are some temporary options that may assist. 

• The Transitional Assistance Management Program (TAMP) is a short-term healthcare program that will give you 180 days of health care coverage after your separation.
• Continued Health Care Benefit Program (CHCBP) is a premium-based plan that provides coverage for 18 to 36 months when you lose TRICARE.
• Extended Care Health Option (ECHO) helps qualified beneficiaries with special needs.

It’s important to understand that the Veterans Health Administration (VA) is a healthcare provider and not an insurance provider; a subtle difference that many veterans may not be familiar with. While you might be able to receive care from a VA hospital at a reduced or subsidized cost, you may still need insurance for healthcare needs not covered by the VA. 

Budget for New Expenses

In addition to healthcare costs, there are several other expenses that you may not know how to budget for once you’re no longer active duty. Housing, food, transportation and even clothing are all items typically paid for by your branch of military or covered under basic allowance for subsistence (BAS).

There’s a strong likelihood you’re accustomed to part of your compensation being covered or tax-exempt. As you move to post-military jobs, your income will be taxed equally under federal income tax laws and state or local income tax laws. And you won’t be given an allowance for basic budget items like business attire or groceries. 

This in mind, there’s a strong chance you will need to adjust your target salary to account for these needs. Research what the tax accountabilities are in the state you want to live in and determine what your liability might be based on your current or target income to get an idea of what you may owe as a private citizen. Use an online budget calculator to tally up all your expenses plus any state or local sales tax. 

You might be surprised by how much you will need for the cost-of-living expenses and you will likely need to make a little bit more in a civilian job to see the same net income as you did while serving.

Make Sure Your Credit is in Good Shape

In the future, you may want to buy a house, secure a car loan, or apply for a credit card as you adjust your finances to post-military life. Each of these opportunities can be impacted by your credit score. 

Because the lifestyle of an active-duty military service member is so different from a civilian, you may not be aware of how to build your credit. You likely had a number of expenses paid for by the military and never thought to apply for a credit card or take out a loan. This is especially true if you were deployed overseas or lived on base for long periods of time, since most of your needs were taken care of. 

If you’ve already established good credit habits, consider requesting higher credit card limits or transferring debt to low or zero-interest credit cards to best position your available credit for post-military life. Not only will this create some cushion in case you need to make a large purchase, but in the short term, it could raise your credit score by lowering your credit utilization rate. This is one of the most important factors of your credit score and a ratio you want to keep at about 30% in order to earn top-tier credit status. 

If you’re just beginning to use credit, consider applying for a credit card now while you’re still earning a stable military income, and charging for items you will need post-military. Start with basics like household items, clothing, or gas, and pay the charges off before you’re charged interest. This will help build a positive credit history, which is another key factor in having a good credit score. 

Consider Your Housing Options

Housing will likely take the largest portion of your budget when you leave the military. However, as a veteran, you may be eligible to take advantage of several benefits through a VA home loan. 

There are several benefits of a VA home loan, including:

$0 Down Payment: One of the most advantageous benefits of the VA loan is that perspective borrowers can finance 100% of the purchase of a new home. Down payments are often a challenge for many who wish to purchase a home. With a VA home loan, veteran and military homebuyers don’t have to be concerned with saving for large sums of money for a down payment.

Competitive Rates: As an added benefit, VA loans typically offer better interest rates – and average anywhere from .5% to 1% lower than conventional loan interest rates. Mutual of Omaha Mortgage publishes its rates daily on the Mortgage Rates page.

Flexible Qualifications: The primary goal of the VA loan is to bring homeownership within reach for veteran and military homebuyers. VA-eligible loan applicants aren’t held to as strict of credit requirements as their conventional loan counterparts. If you have a less-than-perfect credit history, it’s still worth reviewing your options with a Mutual of Omaha Mortgage loan officer.

No PMI: In most cases, if you put less than 20% down on your new home purchase, you’ll be required to pay PMI (or Private Mortgage Insurance). VA home loans don’t have a PMI requirement. 

Getting your finances in order might seem daunting, but it doesn’t have to be. And taking the needed steps when leaving the military can set you up for financial health in the long term. 

If you’re a veteran and might be looking to purchase a new home, the VA home loan is an incredible benefit that you should consider. Contact a Mutual of Omaha Mortgage loan officer to determine your VA eligibility or give us a call at 1-800-24-RATES.