Veterans Employment Center

Transcription

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2 Veterans Emplyment Center Resurces Build a Prfile Publish an nline prfile t cnnect with thusands f emplyers lking t hire Veterans. Translate Yur Skills Utilize the Department f Labr s O*NET resurces t translate military ccupatinal cdes (MOC) int civilian skill equivalents and learn abut related civilian career paths. Search fr Jbs The Veterans Jb Bank (VJB) allws users t search 1.2 millin jbs frm the private sectr and federal, state and lcal gvernments. Advantages View Emplyer Cmmitments Identify emplyers wh made cmmitments t hire Veterans and the types f psitins they need t fill. Cnnect with Resurces Learn mre abut incentives fr hiring Veterans. Discver career transitin resurces. Opprtunities The VEC is the federal gvernment s single nline surce fr cnnecting transitining Service members, veterans and their families with meaning career pprtunities. In cnnectin with the First Lady and Dr. Biden s Jining Frces initiative, the Departments f Veterans Affairs, Labr, Defense and Educatin, the Small Business Administratin and the Office f Persnnel Management, cllabrated t create the VEC by incrprating the best nline emplyment tl features. Persnal Financial Management fr Transitin Participant Guide September 2014 page ii

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5 TABLE OF CONTENTS Veterans Emplyment Center... ii Individual Transitin Plan Deliverables... iii Military Life Cycle... iv Sectin 1.1: Develp Yur Spending Plan... 1 Sectin 1.2: Analyze yur Credit Reprt and Scre Sectin 1.3: Evaluate Salary and Ttal Cmpensatin Sectin 1.4: Leveraging Resurces fr Yur Financial Future Sectin 1.5: Evaluate the Cst f Living Sectin 1.6: Understand Hw Taxes Change Persnal Financial Management fr Transitin Participant Guide September 2014 page v

6 MODULE PREREQUISITE Service members shall bring t class their mst current End f Mnth (EOM) Leave and Earning Statement (LES), Individual Transitin Plan (ITP) list f gals (career, lcatin, hme ptins), list f expenses, list f debts, a recent credit reprt, and a calculatr. Each member will als need the Financial Planning Wrksheet fr Career Transitin lcated n the TAP website because this tl will be updated during the delivery f this mdule. COMPETENCY Be able t develp a pst-transitin 12-mnth spending plan. LEARNING OBJECTIVES Participants will: Define lng-term (12 mnths) and shrt-term (less than a year) transitin gals using the ITP Determine SMART Gals: Specific, Measurable, Achievable, Realistic, and Timely/Trackable Determine current financial situatin by cmpleting a financial spending plan using the electrnic Financial Planning Wrksheet Analyze current and desired financial state Anticipate future requirements Cmplete the fllwing sectins in their financial spending plan: Net wrth statement Incme Statements Saving & Expenses Indebtedness/Summary Actin Plan/Gals Daily Expense/Spending Plan Develp a pst-service, 12-mnth transitin spending plan Persnal Financial Management fr Transitin Participant Guide September 2014 page 1

7 INTRODUCTION The Transitin GPS Curses, including all f the Financial Planning mdules, shuld help yu determine yur prjected path. Understanding yur current finances and taking what yu have learned frm the Transitin GPS material will assist yu in cmpleting a current and 12-mnth psttransitin budget. We understand that as time ges n this might change but having an understanding f where yu are, where yu want t g and what actins t take t make yur gals a reality is imprtant fr yur financial future. Using the Financial Planning Wrksheet, a cmprehensive financial planning tl, yu will develp a picture f yur financial life. Yu may be thinking, Why are we ging t devte all this time t develping a spending plan? Why has this been determined t be a key element f yur transitin? Remember thse gals that yu established during yur pre-separatin cunseling? Let s take a lk at them. Mst f them require mney t accmplish. Let s say yu have decided t attend cllege r career technical schl when yu get ut; yu will have yur VA educatinal benefits but they wn t cver all the expenses. There is nw a Presidential Executive Order directing the Departments f Educatin, Defense, and Veterans Affairs, in cnsultatin with the Cnsumer Financial Prtectin Bureau (CFPB), t take steps t ensure that the Service member, Veterans, and their families can get the infrmatin they need abut the schls where they spend their educatin benefits. Yu will learn mre abut that in the Educatin track. Sme f yu are ging t jump right int the civilian jb market smetimes it takes a few mnths t find a jb that will cver yur expenses, debt, and gals while fulfilling yur passin. Hw are yu ging t supprt yurself and/r yur family in the meantime? Maybe yu have decided t start yur wn business it culd take sme time t realize a prfit. Many new businesses struggle the first few years and sme fail, s hw will yu make ends meet during the lean years? Are yu financially prepared? The spending plan is a tl that helps yu build the financial part f yur plan t meet yur transitinal gals. Fr sme f yu, develping a spending plan might be a new experience, r it culd have been awhile since yu have reviewed it. After all, yu have had a cnsistent flw f mney cming in and ging ut and haven t felt the need t write it dwn. Whatever yur circumstances, it is imprtant fr all f yu t lk clsely at the details f yur fiscal life during this time f change. Fr the next few hurs, yu will wrk with the tls that will help yu d just that. Other tpics that will be imprtant t yur plan will als be cvered. We will talk abut yur credit reprts and scres, hw t evaluate salary ffers, cmpensatin packages, cst f living and tax issues related t yur transitin. What if that great jb ffer requires yu t live in anther state? Civilian mves are different frm military mves in a number f key aspects. Cnsider taxes, fr example. Hw many f yu are a legal resident f ne state withut state incme tax but live in anther that des have state incme tax? Typically, yur military pay is nly taxable in yur state f residence. Hw many f yu receive discunted rates n vehicle tags r military persnal prperty tax waivers? Yu usually can t d that as a civilian. All f these situatins culd have tax and cst f living implicatins. Persnal Financial Management fr Transitin Participant Guide September 2014 page 2

8 WHAT IS A SPENDING PLAN? A spending plan is simply a tl t assist yu in reaching yur gals. It is a written methd t measure and manage the mney that cmes in and ges ut f yur pcket. A cmmn name fr a spending plan is a budget. CHARACTERISTICS OF AN EFFECTIVE SPENDING PLAN A guide and servant nt a master. Sme peple think f a budget r a spending plan much like a diet I have t suffer thrugh this, and it will be painful, but hpefully in the end I ll achieve my gals. If yur spending plan accunts fr all f yur needs but als fr sme f yur wants, it wn t feel restrictive. In fact, it shuld free yu frm wrry! Is nt necessarily a dwn-t-the-penny accunting. That is nt t say it can t be dwn t the penny, sme peple like t be that specific with their mney. Hwever, if yu are nt much f an accuntant, dn t wrry. The spend plan prcess will help yu build up t accurate and effective numbers. Easy t understand. In its simplest frm, a spending plan is a list f mney that cmes in and mney that ges ut. It shuldn t be any mre cmplex than it needs t be fr yur situatin. Althugh this prgram will intrduce yu t an eight-page tl, if yur financial situatin is straightfrward, yu may nt need t use the cmplete frm r a simpler frm may wrk. Keep the prcess as simple as yu can. A reflectin f yur needs, wants, values and gals. It shuld reflect the way yu actually spend yur mney. Anyne that yu share yur fiscal life with shuld be invlved in the budgeting prcess. Fr example, if yu are married, yur spuse shuld be included in discussing and cmpleting the plan. Persnal Financial Management fr Transitin Participant Guide September 2014 page 3

9 Based n current incme, savings, expenses, and debt. If yu dn t knw what yur current incme, savings, expenses and debt are, estimate as clsely as yu can and update when yu have crrect numbers. Service members can usually list their incme and savings easily, but listing expenses and debt may take mre effrt. After yu have given it yur best then yu need t test drive yur spend plan. That means that yu need t track all f yur expenses fr 30 days. Make this as easy n yurself as pssible. Sme peple like t write dwn all the expenses and spending as it happens thers will save all the receipts and tally up at the end f each week. D what wrks fr yu! Tracking expenses daily is a pwerful tl t determine where yur mney is ging. When determining debt yu shuld review yur credit reprt t ensure yu haven t frgtten anything. Practical and realistic. It has t be based n reality. Yu may want t spend nly $50 a mnth n gas fr yur car, but is that realistic? Yu may want t start riding yur bike rather than driving, but is that practical? As yu wrk thrugh yur spending plan, be sure t keep it real. Flexible. It shuld nt be a straitjacket. Build in flexibility by adding in a cushin, r better yet, build up yur emergency and reserve savings s yu can be flexible when yu need t be. Prvides fr pleasures as well as necessities. Service members and their families wrk hard fr their mney and make sacrifices every day that mst civilians dn t. It bears repeating that yur spending plan needs nt be s restrictive that yu have n rm fr sme f life s pleasures. There are times when everyne needs t cut back, but it is reasnable and expected that peple will build int their spending plan sme mney fr pleasures, as well as necessities. Can be shrt term r lng term. A shrt-term budget is fr smething that is less than year frm nw that yu are planning fr and a lng-term budget is mre than 12 mnths. Determines SMART Gals: A budget shuld be Specific (list as much as yu can and in detail including gals), Measurable (set criteria s yu can see prgress), Achievable (setting steps and develping attitudes, abilities, skills, and financial change t reach them), Realistic (are yu willing and able t wrk tward the gal), and Timely/Trackable (what is the timeline yu need t achieve it). Persnal Financial Management fr Transitin Participant Guide September 2014 page 4

10 WHY IS A SPENDING PLAN IMPORTANT? Being specific n what yu want t d when yu transitin, having a plan (e.g., budget) that yu can measure as yu g alng, and setting actin plans t make yur gals achievable and realistic will help yu track yur prgress and make yur transitin mre rewarding. Live within yur incme: By putting everything dwn in black and white, and by planning and tracking spending, yu will have a guide that keeps yur spending in line with yur financial gals and expectatins. Realize persnal gals: Part f develping a spending plan invlves writing yur gals dwn n paper and listing the steps needed t achieve thse gals. Maintain a gd credit histry: The first step in having gd credit is t pay yur bills n time and a written spending plan prvides the fundatin fr a great credit reprt. The ultimate gal f any spending plan is t help yu build wealth, nt debt, s as yur assets grw and yur debt is kept t a minimum r eliminated and paid n time, yur credit reprt will imprve ver time. Get mre fr yur mney: A spending plan is the single best way t help find leaks in yur spending. Tracking yur incme and expenses, may help find mney yu didn t knw yu had. Perhaps yu ve been spending mney n things that yu dn t really need r value. Yu may find there is mney lst nt knwing where sme f yu mney ges. Yu shuld accunt fr 100% f yur mney. Reduce financial stress and arguments: Planning incme and expenses, writing dwn gals, and wrking tgether with yur spuse n an agreed upn plan culd greatly reduce financial stress in a relatinship. Mney is a tp reasn Service members experience stress n the jb and ne f the tp things cuples fight abut a written spending plan can help avid these situatins. Achieve financial cmpetence and cnfidence: A spending plan can assist with reaching an imprtant financial gal in yur life buying a huse, financing a child s educatin, r retiring early. Imagine what it wuld feel like t be fully in cntrl f yur mney, cntrl expenses, with lw debt, adequate savings and an investment plan in place. Persnal Financial Management fr Transitin Participant Guide September 2014 page 5

11 THE FINANCIAL PLANNING WORKSHEET In this prtin f the mdule, yu will spend time wrking thrugh the Financial Planning Wrksheet. It is a straightfrward, yet cmprehensive budget dcument. The table belw highlights the majr cmpnents and rganizatin f the wrksheet. Wrksheet Cmpnents Wrksheet Organizatin Budget Elements Net wrth Statement Mnthly Incme Mnthly Savings Expenses Expense Tracking Frm Indebtedness Actin Plan (Gals) 12 Mnth Budget Determine yur net wrth Determine current incme status Use Transitin GPS tls t: determine future salary and cst f living bjectives determine future incme, savings, expenses, and debt Create current and prjected Actin Plans Create a 12-mnth, psttransitin budget Incme Savings Expenses Debts NET WORTH Assessing yur net wrth may be helpful t yu during yur transitin. Determining yur assets and measuring their grwth can be an indicatr f hw yu are prgressing in yur verall financial plan. Using sund financial principles t manage yur mney will ensure that each year the bttm line increases. NOTE: Ideally, yu shuld have a psitive net wrth, but fr many peple just starting ut, it is cmmn t have a negative net wrth. Assets are things like cash yu have n hand, the amunt in yur checking/savings/investments, and items f value yu wn. Persnal Financial Management fr Transitin Participant Guide September 2014 page 6

12 Liabilities are financial bligatins t ther parties and include things like lans, credit card balances, mrtgages, etc. Nte: Yu will see that this budget includes the market value f yur primary hme as an asset, but des nt include the mrtgage yu we n it in the liability sectin because yur Basic Allwance fr Husing (BAH) shuld cver the cst f yur mrtgage. Hwever, when transitining frm the military yu will nt have BAH. When calculating net wrth fr yur pst-service budget, it is imprtant t include any liabilities assciated with yur assets, including yur mrtgage payment. TIP: There are many calculatrs t assist yu with estimating the value f what yu wn (assets). T find the value f savings bnds check: Yu can estimate yur hme value at: T find yur car s value check: INCOME T reduce cnfusin, it s imprtant t review cmmn terms used when dealing with incme: Grss Incme Yur husehld ttal pay and allwances; everything earned Net Incme Yur husehld grss incme minus taxes minus any ther deductins r autmatic alltments. (This is the amunt depsited in yur accunt each payday.) Fr the purpse f this curse, yu can think f net incme as the amunt f mney yu take hme frm each paycheck. Persnal Financial Management fr Transitin Participant Guide September 2014 page 7

13 ACTIVITY: Cmplete the Incme prtins f the wrksheet Instructins: Fr the Incme prtin, yu will need t pull infrmatin frm yur Leave and Earnings Statement (LES) and refer t Tab 2 f the Wrksheet. Fr the Savings prtin, yu will need t refer t Tab 5 f the wrksheet. T calculate yur Incme: 1. Cpy all f yur pay and allwances frm yur LES r use a current pay chart t calculate yur grss mnthly pay. Remember, yur End f Mnth amunt is nt yur full mnthly incme s remember t add in yur mid-mnth pay. CAUTION: This figure culd be different frm yur taxable pay. All taxable items will have an asterisk (*) beside them in the entitlements sectin n yur Financial Planning Wrksheet. If yu re nt sure what entitlements are taxable, please see yur installatin financial cunselr r yur installatin finance ffice. Persnal Financial Management fr Transitin Participant Guide September 2014 page 8

14 2. Subtract all deductins frm yur pay. These may include: Taxes Service members Grup Life Insurance (SGLI) Family SGLI (FSGLI) Traumatic Service member Grup Life Insurance (TSGLI) Autmatic cntributins t yur Thrift savings plan (TSP) and ther investments r ther autmatic cntributins t savings, etc. Health (Medical and Dental) Advance pay Overpayments Armed Frces Retirement Hme Cntributins r payments t military aid rganizatins Alltments 3. After subtracting the abve frm yur grss incme yu will have calculated yur net incme. NOTE: Sme financial representatives will als want yu t subtract frm yur grss incme yur nn-autmatic cntributins t savings (transfers, checks, etc.). Fr example, when yu depsit funds int yur savings after yur paycheck is received in yur bank accunt. The reasn fr this is the gal f paying yurself first. If yu autmatically pay yurself first whether thrugh autmatic cntributins as stated abve r yu immediately transfer funds after yu receive yur paycheck remember t d the apprpriate subtractin t knw what yu have t spend which is yur net incme r as mentined abve sme call yur take hme pay. RATIOS Often referred t as the Rule, financial experts suggest that the ideal distributin f yur net incme is: 70% t living expenses (smaller percentage is better) 20% t debt payments (smaller percentage is better) 10% t savings (larger percentage is better) Persnal Financial Management fr Transitin Participant Guide September 2014 page 9

15 This is used as a guide t help yu understand hw yu are ding. We will discuss ratis mre as we mve n thrugh the wrkshp. SAVINGS AND INVESTMENTS T calculate yur Savings 1. List all f the mney yu save in Tab 5 f the wrksheet. 2. This includes any mnthly amunts put int savings funds, as well as entries fr investments such as the thrift savings plan (TSP), Saving Depsit Plan (SDP), 401(k), ther mutual funds, stcks, and ther types f investment tls. 3. Place in the remarks sectin the amunt listed that came ut f yur grss incme and prir t yur net incme (autmatic deductins, transfer t savings immediately after receiving pay). We will explain belw. 4. Ttal the mnthly savings and investment amunts. Is this what yu want? Persnal Financial Management fr Transitin Participant Guide September 2014 page 10

16 5. Nw let us d the 20% rati test: Take yur ttal savings/investments and divide the amunt by yur net incme and multiply by 100. This percentage tells yu hw much incme yu save. Our gal is fr 10% r mre. If yu had funds autmatically cntributed t yur savings/investments when calculating yur net incme whether that was thrugh autmatic draft r yu immediately transferred it nce yu received yur paycheck then yur savings rati will be a little higher than it shuld shw. That is because yu have a lwer net incme number since yu had autmatic cntributins dne prir t receiving yur paycheck and a larger savings amunt since yu als placed it n yur budget sheet resulting in a duplicatin. This rati is nt a prblem if yu d nt have any funds cming ut prir t calculating yur net incme r transferring funds. Hwever, if yu did have autmatic transfers/cntributins that were subtracted frm yur net incme remember t increase yur net incme up by yur savings amunt and then d the calculatins. Mst financial advisers suggest yu save 5-10% f net incme at the minimum but the mre yu save, the mre cushin yu have, resulting in less stress. This culd be adjusted depending n the ecnmic times. If jbs are hard t cme by then yu may want t increase this even mre than 10% t prepare yurself fr the ptentially tugh rad ahead. But yu shuld try never t g belw 10%. Als, saving is easier when yu are yunger s yu shuld try and save mre than 10%. It is expected that as yu get lder yur life will have mre financial respnsibility with family expenses. Save what yu can at first and then increase it little by little. It is helpful t determine what yu are saving fr. If yu target the mney it will be easier t stick with yur savings plan. This is a very imprtant step fr transitining members. Having sme mney put away can give yu ptins during yur transitin. It is imprtant yu set gals fr each f these areas t have a balanced savings and investment prtfli: Emergency Savings (minimum f $1,000) Reserve (minimum f 3-6 mnths but 1 year wuld be ideal) Gal getter (items yu want) IRA, TSP, and ther investments Persnal Financial Management fr Transitin Participant Guide September 2014 page 11

17 LIVING EXPENSES Living expenses are the daily, weekly, and mnthly items that we pay ut in rder t live grceries, utilities, clthing, childcare, entertainment, etc. Capture yur living expenses n Tab 5 f the wrksheet. Using the wrksheet yu ve been cmpleting thus far, wrk dwn the page and cmplete the Actual clumn. TIP: If yu knw yu spend mney n an item, but dn t knw hw much, cnsider tracking yur spending fr ne r tw pay perids and then update the wrksheet. TRACKING EXPENSES D yu knw hw much yu spend each mnth n living expenses? Fr tday estimate as clse as yu can. Yu can really get exact later by tracking yur actual expenses fr a mnth. Living expenses take up the majrity f yur incme. Sme expenses are fixed, such as rent and insurance; while thers are variable entertainment, fd, and clthing. Yu can cntrl variable expenses and adjust the amunts yu spend in these categries t have mre t use smewhere else. NOTE: Mst peple wh are building their first spending plan cannt accunt fr 10% f their incme they simply dn t knw where the mney ges. During yur transitin this 10% culd cme in very handy. Persnal Financial Management fr Transitin Participant Guide September 2014 page 12

18 Optins fr tracking expenses: Use the frm n Tab 8 called Daily Expenses n the wrksheet. Keep a small ntebk in yur wallet r purse t recrd every purchase Write everything dwn $2 fr an energy drink, $6 fr lunch, $5 fr cffee, $15 yu laned t a cwrker, etc. Keep receipts frm every purchase and ttal them up at a minimum by the end f the week Review past spending frm statements After yu ve written everything dwn fr a mnth, grup yur expenditures int categries similar t thse listed n Tab 5 f the wrksheet and enter them n the frm Why track expenses? T give yurself an hnest picture f yur spending s yu can make infrmed decisins abut yur budget. ACTIVITY: Calculate yur Living Expenses Instructins: After yu cmplete Tab 5 yur ttal mnthly living expenses will be autmatically calculated. EXPENSE RATIO Nw we will d the same thing fr yur expenses as we did fr yur savings rati. Take the ttal f yur expenses and divide by yur net incme and multiply by 100. This percentage tells yu hw much f yur incme ges t expenses. Our gal is fr the expense-t-incme rati t be n mre than 70%. Hw is yur expense rati? If it is abve that can yu find areas where yu can make adjustments t yur spending? On ur example, what des it tell yu? DEBT MANAGEMENT Nw n Tab 6 let s lk at wh yu we mney t, what the minimum payment is and hw much interest yu are being charged. This is captured in the Indebtedness tab within the wrksheet. Persnal Financial Management fr Transitin Participant Guide September 2014 page 13

19 Items that fall int this categry generally include: Credit cards (bank, department stre, gas, etc.) Car lans Persnal lans Cnslidatin lans Student lans Advanced payments Overpayments Indebtedness t military aid rganizatins, family and friends Items NOT included as debts: Yur mrtgage Fr the purpses f this spend plan, yur mrtgage is cnsidered a living expense and was cnsidered in the Expenses Tab 5. While n active duty yur husing allwance likely cvers yur rent/mrtgage. A true debt t incme rati wuld include yur mrtgage because banks/creditrs will take that mrtgage payment and balance int cnsideratin. Any rental prperty yu have that is nt yur primary residence. This als culd be cnsidered a debt by banks/creditrs s be aware that if yu are ging t try and btain credit yu may run the numbers with this included. Nte: Remember paying the minimum payments and having a large balance will affect yur financial future as the debt can becme a snwball effect. Yu will pay much mre fr the item then what yu riginally thught yu were paying fr it and mst likely the value f the item will be less than what yu we n it. The Annual Percentage Rate (APR) is anther factr that can affect this. That is why it is imprtant t understand yur APR n an item and hw it relates t yu because f yur credit scre which we will discuss later. SUMMARY OF INCOME, SAVINGS, INVESTMENTS, LIVING EXPENSES, AND DEBT-INCOME RATIO ACTIVITY: Calculate the indebtedness and summary sectin f the Financial Planning Wrksheet Instructins: Cmplete the sectin n yur wrksheet that pertains t debts and the summary f all yur incme, savings/investments, living expenses, balance t pay debts and ttal debt payments. This summary will determine whether the budget has a surplus r deficit. Dn t panic if yu re in a deficit situatin at least nw yu have it written dwn and can begin turning it arund int a surplus. Take a lk at where yu feel yu can adjust yur expenses in rder t pay ff yur debt faster r begin t save. Persnal Financial Management fr Transitin Participant Guide September 2014 page 14

20 NOTE: One f the majr differences yu will encunter in the civilian wrld is the frequency f pay perids. They vary frm mnthly, bi-weekly, twice/mnth, r weekly. Fr example: Yu have been used t managing yur mney arund 24 paydays a year, if this changes t 26 then sme adjustments will be needed in yur spending plan. YOUR DEBT-TO-INCOME RATIO Mnitring yur debt-t-incme rati is a gd way t get a quick check f yur financial health. The financial planning wrksheet will calculate yur debt-t-incme rati alng with sme ther ratis we will discuss next. T understand hw the spreadsheet frmulas are calculated we will first walk yu thrugh hw t determine yur debt-t-incme rati: Determine yur net mnthly incme by identifying everything yu make in ne mnth Ttal all mnthly debt payments Remember t exclude mrtgage payments while in the service as we assume yur BAH cvers it but yu shuld include it n yur pst-service budget. Divide the minimum mnthly debt payments by the ttal net mnthly incme t determine yur debt-t-incme rati Yur minimum payments divided by net incme multiplied by 100 is yur rati Scenari: Pete and Jennifer have a net mnthly incme (after taxes) f $3,750. The ttal f their minimum mnthly payments is $680. The debt-t-incme rati calculatin wuld be: 680 (divided by) 3750 = x 100 = 18 Therefre, their debt-t-incme rati is 18%. Our gal is t have the debt rati well belw 20%. Persnal Financial Management fr Transitin Participant Guide September 2014 page 15

21 DEBT-TO-INCOME RATIO Nw that we have discussed hw t calculate yur Debt-t-Incme Rati lets determine what that rati means. The example abve determined that 18% f the incme went t debt. Using the fllwing guidelines we can determine hw this percentage ranks cmpared t a safe level f debt: Less than 15%: Use cautin when taking n mre debt 15% - 20%: Fully extended; refrain frm taking n additinal debt 21% - 30%: Overextended; dn t take n additinal debt and establish a plan t pay dwn existing debt Mre than 30%: Seek help t reduce debt frm a reputable debt-management surce The less debt yu have then the less stress, the less arguments with family, the better Annual Percentage Rate (APR/interest rate) yu will be ffered which mean less f a payback n items abve the actual cst, etc. It may be difficult t change yur lifestyle in the shrt run t accmplish yur gal f decreasing yur debt but in the lng run yu feel mre cmfrtable abut yur financial future. Nw, that we have perfrmed these ratis and yu will be creating yur wn budget and calculating yur ratis pay clse attentin t hw yu cmpare t these and see what yu can d t imprve yur situatin prir t transitin r what yu can d after transitin. These percentages will vary in different husehlds based n different lifestyles, but these guidelines prve effective in determining yur savings, expenses, and debt level and they will help yu t develp a sund financial plan. Persnal Financial Management fr Transitin Participant Guide September 2014 page 16

22 YOUR ACTION PLAN On the Financial Planning Wrksheet, find yur actin plan. There are several steps yu can take t address financial issues that yu may have detected in yur spending plan. TIP: Decreasing living expenses prduces the mst immediate results. A well-managed spending plan that decreases living expenses can see results within days. NOTE: When yu cnstruct yur budget fr the first time, use the Actual clumn. After cnsidering all ptins and realistic changes, enter figures int the prjected clumn. Sme ways t start imprving yur debt-t-incme rati are listed belw. Remember yur installatin Family Center has certified experts t help yu figure ut ways the will wrk best fr yu and yur particular situatin. Ways t increase incme: Spuse gets jb Active-duty persn gets part-time jb Review and change tax filing status and exemptins Enrll in federal r state prgrams Ways t decrease expenses: Cut back t basic cable Bundle packages fr cable, Internet and cell phne, when there is a savings Eliminate yur land line fr cell phne Check bks ut frm library Use public transprtatin r carpl Turn ff lights when nt using Ask fr military discunts Send rather than calling Trade child-care duty r meal duties with anther cuple Ck at hme and pack yur lunch Shp at thrift stres Evaluate needs versus wants n cell phne packages Ways t decrease indebtedness: Pay ff debts Stp using credit cards Pay dwn debt using a pwer pay plan. Take advantage f websites that explain varius methds f pwer paying. Shp fr the lwest interest rates, refinance when pssible Cnsider cnslidatin lans Seek help if yu are in serius debt. Accrued interest and late fees may be waived by sme creditrs if yu enrll in a nnprfit debt management prgram Persnal Financial Management fr Transitin Participant Guide September 2014 page 17

23 SOURCES OF HELP Just like a business wuld bring in a cnsultant if it started t run int financial prblems, yu have resurces available t yu. If yu are having financial difficulties r need assistance creating a spending plan, get help. Alng with the Installatin Family Service Center Financial prfessinal there are ther resurces t assist: Debt management prgrams at financial institutins (bth n and ff the installatin) Cnsumer Credit Cunseling Services r ther nn-prfit financial educatin rganizatins MilitaryOne Surce and MFLC (while in the service as there are mre free services available) Cnsumer Financial Prtectin Bureau, Office f Service Members Affairs has cntracted ut t ffer financial cunseling at certain Department f Labr and VA centers fr Veterans. Persnal Financial Management fr Transitin Participant Guide September 2014 page 18

24 REVIEW Understanding the fundamentals f the Financial Planning Wrksheet prvides yu with a brad understanding f financial planning and the rad t financial security. Yu shuld be able t take what yu learned in this mdule and during this week t cmplete yur 12-mnth pst-transitin spending plan/budget. Here s a quick review f the cmpnents f the wrksheet: 1. Net Wrth Helps yu measure yur current wealth by subtracting everything yu we (debts) frm everything yu wn (assets). Yur net wrth shuld increase every year. 2. Incme Statements Allws yu t calculate net mnthly incme. 3. Saving and Expenses Allws yu t ttal mnthly savings and living expenses. 4. Indebtedness Summary Allws yu t ttal mnthly debt payments, surplus r deficit, and debt-t-incme ratis. Remember rule. 5. Actin Plan/Gals Helps yu plan ways t cut expenses and debt payments and increase incme. It includes space fr gals, referrals, and additinal educatin/training. 6. Spending Plan/Expense Tracker Spending plan prvides a paycheck-by-paycheck plan t ensure yur actual day-t-day spending is in line with the amunts yu have budgeted. Ask yurself, Of all the things I ve already thught abut and planned fr, which am I willing t give up in rder t spend the mney n smething else? Update as incme changes. Expense Tracker exhibits the benefits f tracking expenses fr a mnth r tw. Track ut-fpcket expenses since everything else tends t be paid fr with a check, autmatic deductins, r a credit card Mnth Pst Service Budget It is a requirement t submit a 12 mnth pst-service budget. As yu d mre research n the tpics we have discussed in this class and thrughut the week yu will be updating this living dcument as yu g alng yur career and int transitin. As yu create yur current budget with the tls yu will learn tday yu will be able t d an Actual current budget. Yu will be able t evaluate issues and then set a prjected budget. Yu will als be able by the cmpletin f this transitin curse/week, and after ding sme f yur wn research prepare a 12 mnth pst service budget. Remember a budget is a living dcument and will need t be updated as yu mve alng. Persnal Financial Management fr Transitin Participant Guide September 2014 page 19

25 MODULE PREREQUISITE Participants must bring with them a current credit reprt (within the last 60 days minimum) btained frm annualcreditreprt.cm COMPETENCY Understand yur credit reprt and scres LEARNING OBJECTIVES Participants will: Define a credit reprt and its uses Obtain a credit reprt frm annualcreditreprt.cm Interpret a credit reprt Obtain a credit scre frm yur financial educatr Analyze the impact f yur credit scre n yur transitin Explain credit-based backgrund checks List ways t crrect yur credit reprt and increase yur credit scre WHY IS ANALYZING YOUR CREDIT REPORT AND SCORE IMPORTANT? Knwing yur credit reprt's cntent and ensuring its accuracy is imprtant. Credit can impact everything frm emplyment ffers t lan and credit card applicatins. Pr credit can take mney ut f yur pcket, harm yur savings, and set back yur plans fr the future. Thrughut this curse, we will prvide mre specifics n the imprtance f, and hw t manage, yur credit reprt and scre. Persnal Financial Management fr Transitin Participant Guide September 2014 page 20

26 WHAT IS A CREDIT REPORT? A credit reprt is used by lenders t find ut infrmatin abut yur credit histry and the status f yur financial accunts. Credit reprts are cmpiled by credit reprting agencies. There are three main natinwide credit reprting agencies: Equifax, Experian, and TransUnin. Mst majr creditrs subscribe t ne r mre credit bureaus. Subscribing t a credit bureau is a tw way street the creditr agrees t cntinuusly supply the credit bureau with current accunt infrmatin n the creditr s custmers in exchange fr the right t find ut infrmatin abut ther credit applicants. Usually, creditrs supply infrmatin t credit bureaus by cmputer. Each mnth the creditr transmits infrmatin abut the status f its cnsumer accunts t the credit bureau. The bureaus use this infrmatin t update each brrwer s credit file autmatically. A credit reprt includes infrmatin abut yu, such as whether yu ve paid yur credit cards n time, hw much credit yu have, hw much available credit yu are using, and if a debt cllectr is taking actin n any debt yu we. Lenders use these reprts t help them decide the type f credit they will extend t yu, whether r nt t give yu an ffer at all, at what Annual Percentage Rate (APR), r t check the status f an existing lan. These reprts can als include public recrds such as bankruptcies, garnishments, liens, and ther judgments. Cllectin agencies send infrmatin n delinquent accunts t credit reprting agencies. There is n way t pt ut f this prcess. Numerus ther cmpanies cllect specified infrmatin abut cnsumers such as tenant histry r payday lan histry. NOTE: Yu will be able t receive yur credit reprt and scre while n active duty thrugh an Installatin Persnal Finance Cunselr r thrugh SaveandInvest.rg. Persnal Financial Management fr Transitin Participant Guide September 2014 page 21

27 WHAT DOES A CREDIT REPORT CONTAIN? Yur credit reprt has basic persnal infrmatin abut yu and lists the fllwing infrmatin by individual accunt: Date yu pened the accunt Type f accunt real estate, revlving (credit card), r installment Whether the accunt is currently pen r has been clsed Mnthly payment amunt Maximum credit limit Latest activity n the accunt Current balance n the accunt Any amunts past due A cde that explains whether the accunt is current, 30, 60, r 90 days past due If the accunt invlves a repssessin, charge ff, r ther cllectin activity Any accunts that have been turned ver t a cllectin agency Addresses and telephne numbers f yur creditrs Persnal Financial Management fr Transitin Participant Guide September 2014 page 22

28 Additinally, a credit reprt will include: Certain infrmatin f public recrd, including curt judgments and pssibly law suits against yu, and garnishments, tax liens, freclsures, and bankruptcies Legal infrmatin abut divrces r annulments Shuld nte any cnsumer statement yu have prvided cncerning an unreslved dispute TIP: If yu find smething wrng with yur credit reprt, yu shuld cntact bth the credit reprting agency and the creditr that prvided the infrmatin (called the furnisher ), if applicable, t tell them what yu think is wrng and why. Yur credit reprt will include infrmatin abut hw t dispute inaccurate r incmplete infrmatin. WHO CAN SEE YOUR CREDIT REPORT? Creditrs can lk at yur reprt whenever yu apply t them fr credit r fr a lan Creditrs can lk at yur reprt t review an existing accunt yu have with them r fr cllectin purpses Cmpanies can lk at yur reprt if yu ve given them written permissin Emplyers can lk at yur reprt, but nly under certain circumstances and nly if yu give them written authrizatin Emplyers are allwed t lk at yur reprt t evaluate yu fr hiring, prmtins, and ther emplyment purpses Emplyers are, mre and mre, using credit reprts in making emplyment decisins Persnal Financial Management fr Transitin Participant Guide September 2014 page 23

29 Gvernment agencies, including thse trying t cllect child supprt and public assistance, can lk at yur reprt Thse cnsidering yu fr eligibility fr public assistance may review yur credit reprt as well Their reasn fr ding this is nt t see if yu have unpaid bills, nly t see if yu have hidden incme r assets Insurance cmpanies can lk at yur credit reprt t determine whether t issue yu a plicy and hw much t charge fr it Landlrds can lk at yur credit recrd when they are deciding whether t rent an apartment t yu If a landlrd turns dwn yur rental applicatin because f bad credit, yu may still be able t rent the apartment if yu can explain sme f the prblems. FAIR CREDIT REPORTING ACT Under the Fair Credit Reprting Act: - Yu must be tld if infrmatin in yur file has been used against yu. Anyne wh uses a credit reprt r anther type f cnsumer reprt t deny yur applicatin fr credit, insurance, r emplyment r t take anther adverse actin against yu must tell yu, and must give yu the name, address, and phne number f the agency that prvided the infrmatin. - - Yu have the right t knw what is in yur file. Yu may request and btain all the infrmatin abut yu in the files f a cnsumer reprting agency (yur file disclsure ). Yu will be required t prvide prper identificatin, which may include yur Scial Security number. In many cases, the disclsure will be free. Yu are entitled t a free file disclsure if: A persn has taken adverse actin against yu because f infrmatin in yur credit reprt; Yu are the victim f identity theft and place a fraud alert in yur file; Yur file cntains inaccurate infrmatin as a result f fraud; Yu are n public assistance; Yu are unemplyed but expect t apply fr emplyment within 60 days. In additin all cnsumers are entitled t ne free disclsure every 12 mnths upn request frm each natinwide credit bureau and frm natinwide specialty cnsumer reprting agencies. See fr additinal infrmatin. Persnal Financial Management fr Transitin Participant Guide September 2014 page 24

30 - Yu have the right t ask fr a credit scre. Credit scres are numerical summaries f yur credit-wrthiness based n infrmatin frm credit bureaus. Yu may request a credit scre frm cnsumer reprting agencies that create scres r distribute scres used in residential real prperty lans, but yu will have t pay fr it. In sme mrtgage transactins, yu will receive credit scre infrmatin fr free frm the mrtgage lender. - Yu have the right t dispute incmplete r inaccurate infrmatin. If yu identify infrmatin in yur file that is incmplete r inaccurate, and reprt it t the cnsumer reprting agency, the agency must investigate unless yur dispute is frivlus. See fr an explanatin f dispute prcedures. - Cnsumer reprting agencies must crrect r delete inaccurate, incmplete, r unverifiable infrmatin. Inaccurate, incmplete r unverifiable infrmatin must be remved r crrected, usually within 30 days. Hwever, a cnsumer reprting agency may cntinue t reprt infrmatin it has verified as accurate. - Cnsumer reprting agencies may nt reprt utdated negative infrmatin. In mst cases, a cnsumer reprting agency may nt reprt negative infrmatin that is mre than seven years ld, r bankruptcies that are mre than 10 years ld. - Access t yur file is limited. A cnsumer reprting agency may prvide infrmatin abut yu nly t peple with a valid need -- usually t cnsider an applicatin with a creditr, insurer, emplyer, landlrd, r ther business. The FCRA specifies thse with a valid need fr access. - Yu must give yur cnsent fr reprts t be prvided t emplyers. A cnsumer reprting agency may nt give ut infrmatin abut yu t yur emplyer, r a ptential emplyer, withut yur written cnsent given t the emplyer. Written cnsent generally is nt required in the trucking industry. Fr mre infrmatin, g t - Yu may limit prescreened ffers f credit and insurance yu get based n infrmatin in yur credit reprt. Unslicited prescreened ffers fr credit and insurance must include a tll-free phne number yu can call if yu chse t remve yur name and address frm the lists these ffers are based n. Yu may pt-ut with the natinwide credit bureaus at OPTOUT ( ). - Yu may seek damages frm vilatrs. If a cnsumer reprting agency, r, in sme cases, a user f cnsumer reprts r a furnisher f infrmatin t a cnsumer reprting agency vilates the FCRA, yu may be able t sue in state r federal curt. - Identity theft victims and active duty military persnnel have additinal rights. Fr mre infrmatin, visit Persnal Financial Management fr Transitin Participant Guide September 2014 page 25

31 REVIEWING YOUR CREDIT REPORT The first step in learning abut yur credit reprt is t rder cpies frm the three main credit bureaus and read these reprts carefully. It is imprtant t make sure that the infrmatin n the reprt is accurate, because errrs in yur credit reprt culd hurt yur ability t get a lan, and may determine the Annual Percentage Rate (APR) yu pay n the lan. Because there can be differences in the reprts kept by each f the three majr natinal credit bureaus, yu shuld rder yur reprt frm all three, either n-line, in writing, r by telephne. TIP: Order frm ne cmpany, then fur mnths later frm anther, then fur mnths later rder the last cmpany s reprt. As mentined abve, each credit bureau is required t prvide yu with ne free credit reprt per calendar year. Yu can get yur free credit reprts frm a centralized request service that was created by the three natinwide cnsumer credit reprting cmpanies at: If yu prefer t use mail, cmplete the Annual Credit Reprt Request Frm and mail it t: Annual Credit Reprt Request Service P.O. Bx Atlanta, GA D nt cntact the credit bureaus individually fr yur free annual reprt; they are nly prviding free annual credit reprts thrugh the centralized resurce mentined previusly. Persnal Financial Management fr Transitin Participant Guide September 2014 page 26

32 WHAT TO EXPECT WHEN YOU MAKE YOUR REQUEST: Yu ll need t prvide yur name, address, Scial Security number, and date f birth If yu have mved in the last tw years, yu may have t prvide yur previus address T maintain the security f yur file, each credit bureau may ask yu fr sme infrmatin nly yu wuld knw, like the amunt f yur mnthly mrtgage payment Each bureau may ask yu fr different infrmatin Yu als have the right t btain a free credit reprt in certain ther circumstances, such as if: Yu are denied credit, insurance, emplyment, r rental husing, r adverse actin was taken against yu based n infrmatin in yur credit reprt fr example, yur interest rate was raised r yur credit limit was decreased. The party making the denial r adverse actin is required t tell yu the name, address, and telephne number f the credit reprting agency frm which the lender btained yur credit reprt. Yu are unemplyed and plan t seek emplyment within 60 days. Yu receive public welfare assistance. Yu were a victim f Identity Theft. Yu have reasn t believe yur credit file is inaccurate due t fraud. Yur state may ffer a free r reduced-price credit reprt. Check with yur state as these plicies may change ver time. Review the FTC infrmatin mentined abve NOTE: If yu have already accessed yur free annual reprt, credit bureaus can currently charge yu n mre than $11.50 per reprt fr additinal reprts. This is a maximum charge, nt a required charge, and sme states have passed laws limiting the amunt credit bureaus can charge cnsumers fr reprts. T learn mre abut the 3 agencies, benefits, reduced fees and state csts visit the 3 credit reprting agencies websites. Equifax: Transunin: Experian: Persnal Financial Management fr Transitin Participant Guide September 2014 page 27

33 CREDIT SCORING A credit scre is a number used by lenders t help them evaluate the likelihd that yu will pay back a lan. It is calculated based n infrmatin in yur credit reprt, which is why it is s imprtant that yu check yur credit reprt t ensure the infrmatin in it is accurate. There are many different credit scres sld in the marketplace. Each credit bureau and credit scring cmpany has a slightly different way f calculating credit scres, as such, yur scre may vary depending n the scring mdel used and which credit reprting agency s data is used in making the reprt. At a minimum, mst f the credit scres sld cmmercially lk at all f the fllwing factrs t determine yur credit scre: Yur payment histry have yu been paying n time and hw much are yu paying Amunt yu currently we n credit accunts The amunt f credit yu use cmpared t the amunt f credit yu have available Length f time the accunts have been pen The different types f credit yu use Hw ften and hw recently yu have applied fr credit Yu shuld nt be afraid t shp fr the best credit just because yu are wrried t many inquiries will shw up n yur credit reprt r lwer yur credit scre. In the case f aut lans and mrtgage lans, fr example, the mst cmmnly used credit scring mdels will cunt multiple same type inquiries as a single inquiry if they ccur within a shrt perid f time, ften a 30-day perid. CREDIT SCORES Credit scres can range frm 350 t 900 depending n if it is a FICO scre r Vantage scre. Generally, mst individual FICO credit scres fall in the range. Rating scales vary between scring agencies and with ecnmic factrs therefre their range f Very Risky, Risky, Gd, and Excellent changes. Requesting yur credit scre at least nce a year is imprtant. When yu request yur credit reprt als request yur credit scre. Remember, higher credit scres may result in better credit terms such as lwer APRs. Ultimately this lwers the ttal cst f the credit. Persnal Financial Management fr Transitin Participant Guide September 2014 page 28

34 CREDIT SCORING FACTORS The precise factrs behind a credit depend n the credit scre mdel used. But, in general, credit scring mdels tend t lk at recent credit activity, length f credit histry, and utilizatin f credit. The biggest credit scring cmpany having ver 90% f the market Fair, Isaac and Cmpany has disclsed the factrs it cnsiders in generating credit scres. Fair, Isaac s scres are called FICO scres. Mst creditrs and credit bureaus either use FICO scres r have a system based n the Fair, Isaac s system. Mre infrmatin is available n-line at Accrding t Fair, Isaac, the factrs cnsidered in determining FICO scres are: Payment histry (abut 35% f the scre) Amunts wed n credit accunts (abut 30% f the scre) They are lking t see whether yu manage credit respnsibly A large number f accunts with balances may indicate yu are verextended Length f credit histry (abut 15% f the scre) In general, a lnger credit histry increases the scre New credit (abut 10% f the scre) Fair, Isaac likes t see that yu have an established credit histry and yu dn t have t many new accunts Opening several accunts in a shrt perid f time can indicate greater risk Types f credit (abut 10% f the scre) Fair, Isaac is lking fr a mix f different types f credit. Hwever, this factr is usually nt imprtant if there is sufficient ther infrmatin upn which t base yur scre The Vantage scre is an alternative scring mdel used by sme lenders. The factrs cnsidered in a Vantage scre include: Payment histry (28%) Analyzes yur payment behavir. Lks at whether yu ve paid yur bills n time, are behind f payments, r stpped paying. Late payments hurt yur scre Utilizatin (23%) Utilizatin is the percentage f credit that yu have used r we n yur credit accunts Persnal Financial Management fr Transitin Participant Guide September 2014 page 29

35 Balances (9%) Reflect the reprted balances n yur credit cards and ther lans. Sudden increases in balances can be a signal f greater risk Depth f credit (9%) Lks at the length f yur credit histry and the types f credit yu have Recent credit (30%) Cnsiders the number f recently wned credit accunts and credit inquiries. A lender may see it as risky if a cnsumer quickly adds a lt f new accunts Available credit (1%) The available credit n all yur accunts. Lenders may see high credit balances as a risk factr NOTE: If the number f inquiries t a cnsumer s reprt pulled dwn the scre, the bureaus must disclse this. Understanding what the creditrs are evaluating helps yu understand what adjustments yu can make t imprve yur scre. IMPROVING YOUR CREDIT SCORE There are several steps yu can take t cpe with a less than stellar credit reprt. The best way t avid being given a pr credit scre is t pay yur bills n time, maintain lw balances, and nly apply fr credit that yu need. Understandably, this can be challenging t d when yu are in financial difficulty. The key factrs disclsed with yur scre shuld help yu identify what credit infrmatin is hurting yur scre the mst, and yu can fcus n imprving this area. In the meantime, yu may als be able t explain a bad scre t creditrs. Althugh the creditr prbably can d little t change yur scre with the credit bureau, it is imprtant that yu explain in detail yur reasns fr prblems n yur credit recrd. Other creditrs may be mre flexible. Persnal Financial Management fr Transitin Participant Guide September 2014 page 30

36 REBUILDING/CORRECTING CREDIT Althugh yu cannt erase bad infrmatin frm the reprt, there are sme simple steps yu can take t make a bad situatin better. Crrect any errrs n yur credit reprt. Yu shuld send a written dispute t each credit bureau that has reprted incrrect infrmatin. The credit bureau by law must investigate the entry and crrect the mistakes. In mst circumstances, the agency is required t get back t yu with the results f the investigatin within thirty days. The creditr wh first supplied the infrmatin t the bureau als has a duty t crrect and update the infrmatin. Even after the entry is crrected, peridically check t make sure this incrrect infrmatin has been deleted permanently. Persnal Financial Management fr Transitin Participant Guide September 2014 page 31

37 Fllw-up yur dispute by: Obtaining anther cpy f yur credit reprt with credit bureau A t cnfirm the crrectins were made Checking t see whether yur reprts at credit bureaus B and C cntain the same errr and if s; send the results f the investigatin f credit bureau A t thse agencies as well Getting anther cpy f the reprt frm credit bureau A three t six mnths later t make sure the bureau has nt put the infrmatin back in Cnsider requesting that all the credit bureaus ntify past users f the crrectins Clean up yur file with the help f the creditr. Yu can try t btain the creditr s help in deleting inaccurate infrmatin. In trying t persuade the creditr the infrmatin was inaccurate, yu shuld supply whatever prf yu have. If yur prf is nt enugh t reslve the matter, yu may have t agree t pay part r all f the debt, whether immediately r in installments. If a creditr des agree t delete infrmatin, it can cntact the credit bureau t request the deletin. Fr example, the creditr culd tell the credit bureau there was gd reasn fr yur late payment and payment had nt in fact been delinquent. Secnd best, the creditr can agree nt t verify its riginal infrmatin if asked by the credit bureau. Be sure any agreement with the creditr t remve past infrmatin is clear and in writing. Persnal Financial Management fr Transitin Participant Guide September 2014 page 32

38 Clean up inaccurate Public Recrd infrmatin. The mst damaging infrmatin n yur credit recrd is smetimes fund frm public recrds, such as arrests, cnvictins, judgments, freclsures, tax takings, and liens. The best way t remve this infrmatin frm yur file is t d s at the surce, with the gvernment agency supplying this infrmatin t the credit bureau, and then make sure the crrected infrmatin is updated in the credit bureau s files. Delete ld infrmatin Mst bad infrmatin must be remved frm yur reprt after a certain number f years, as fllws: Up t 7 Years: Accunts sent fr cllectin r charged ff may be reprted frm the date f the last activity n the accunt fr up t seven years. The date f last activity is n later than 180 days frm the delinquency itself. The seven-year clck des nt start ticking again if the accunt is sld t anther cllectin agency, hwever, the clck may be reset if yu cntact the creditr t negtiate a payff r start making payments again after the last activity date. Lawsuits and judgments may be reprted frm the date f the entry f the judgment fr up t seven years r until the gverning state statute f limitatins has expired, whichever is lnger. Fr suits, the date f entry is the first day f the suit. Fr judgments, the date f entry is the date the judgment was issued. Paid tax liens may nt be reprted mre than seven years after the date f payment. Recrds f arrest (apart frm criminal cnvictins) may be reprted fr seven years r until the gverning state statute f limitatins expires, whichever is lnger. Up t Ten Years: Bankruptcies may be reprted fr n mre than ten years. The clck starts ticking frm the date yu file. Frever: Recrds f criminal cnvictins may be reprted indefinitely. Psitive infrmatin may be reprted indefinitely. The limits discussed abve apply nly t bad infrmatin. Nte - If yu find ld infrmatin n yur reprt, yu shuld fllw the steps utlined abve t request that the credit bureau investigate and delete the infrmatin. Persnal Financial Management fr Transitin Participant Guide September 2014 page 33

39 Explain damaging items. It is ften helpful t send a statement t the credit bureau explaining damaging items. Credit bureaus are required t accept these statements if they relate t why infrmatin in the reprt is inaccurate. They cannt charge t include this statement in yur reprt. The credit bureaus are nt required t include in yur file yur explanatin f why yu were delinquent. Hwever, they may agree t d s. Fr example, they may nt have t include yur letter explaining yu were sick r lst yur jb. But they must include a statement explaining yu were nt delinquent because the creditr agreed t pstpne payments until yu culd return t wrk frm yur illness. If yu request it, the bureau must give the statement r summary t anyne wh received a cpy f yur reprt within the past six mnths, r tw years if the reprt was given ut fr emplyment purpses. Anther apprach, ften mre effective, is t explain the delinquency t the lender frm whm yu are applying fr credit rather than t the credit bureau. Federal law requires that creditrs at least cnsider yur explanatin. Similarly, Fannie Mae requires its mrtgage lenders t review any letter yu prvide explaining yur credit prblems. Avid verreacting t threats t damage yur Credit Rating. Debt cllectrs may threaten t reprt negative infrmatin t a credit bureau, but the threat is nly meant t pressure yu t pay. Creditrs autmatically reprt the fact yur accunt has been sent t a cllectin agency. These threats may be illegal under the federal Fair Debt Cllectin Practices Act (FDCPA). If a creditr itself is ding the threatening, nt an independent agency hired by the creditr, then the FDCPA des nt apply. Yu may have ther legal ways f challenging the creditr s cnduct. Avid Credit Agencies. Avid cmpanies that prmise t fix yur credit recrd fr a fee. They usually call themselves credit repair, credit service, credit clinic, r similar names. The agencies usually cannt deliver what they prmise. Yu can generally d a better jb cleaning up yur credit recrd n yur wn at n cst, r wrk with ne f ur nn-prfits that have Memrandum f Understandings/Letter f Agreements that handle credit cunseling. If yu use the agency, they are nt allwed t prvide any services until three days after yu sign a written and dated cntract. Yu have the right t cancel the cntract fr any reasn during this threeday perid. The federal law (and many state laws) als makes it illegal fr a credit repair agency t make false r misleading statements t credit bureaus. Persnal Financial Management fr Transitin Participant Guide September 2014 page 34

40 Be careful f ffers by cmpanies that claim they can repair yur credit. If yu see an ffer fr repair f yur credit, here are sme red flags that culd indicate the service culd be engaged in questinable practices: The cmpany wants yu t pay fr credit repair services befre they prvide any services. Under the Credit Repair Organizatins Act, credit repair cmpanies cannt require yu t pay until they have cmpleted the services they have prmised. The cmpany desn t tell yu yur rights and what yu can d fr yurself fr free. The cmpany recmmends that yu d nt cntact any f the three majr natinal credit reprting cmpanies directly. The cmpany tells yu they can get rid f mst r all the negative credit infrmatin in yur credit reprt, even if that infrmatin is accurate and current. N ne can d this. The cmpany suggests that yu try t invent a new credit identity and then a new credit reprt by applying fr an Emplyer Identificatin Number t use instead f yur Scial Security number, this is a bad idea. The cmpany advises yu t dispute all the infrmatin in yur credit reprt, regardless f its accuracy r timeliness. Bad advice can put yu in legal ht water. It is a federal crime t lie, misrepresent yur Scial Security number, r t btain an Emplyer Identificatin Number frm the Internal Revenue Service under false pretenses. Credit repair cmpanies must abide by the Credit Repair Organizatins Act, a federal statute enfrced by the Federal Trade Cmmissin. This law prhibits deceptive practices by credit repair rganizatins. Yu have a right t sue a credit repair rganizatin that vilates the Credit Repair Organizatin Act. Yu have the right t cancel yur cntract with any credit repair rganizatin fr any reasn within three business days frm the date yu signed it. If yu have cmplaints r cncerns abut a credit repair scam, please cntact the FTC. Yu can file an FTC cmplaint at r call FTC-HELP. FREE ISN T ALWAYS FREE Watch fr cmpanies that claim yur credit scre is free as they may start charging yur credit card fr a mnitring fee each mnth. Use annualcreditreprt.cm r the actual credit reprting agencies we mentined here. Ask the installatin Financial Cunselr where else yu can btain yur reprt/scre. Persnal Financial Management fr Transitin Participant Guide September 2014 page 35

41 HOW DOES THE CREDIT SCORE IMPACT YOUR TRANSITION AND BACKGROUND CHECKS Emplyers frequently cnduct backgrund checks n current and ptential emplyees. These checks generally include btaining a credit reprt. Ensuring yur credit reprt reflects accurate and crrect infrmatin helps yu present yur best image t a ptential emplyer. Additinally, yur credit scre culd affect yur hme rental ptins r mrtgage interest rates. METHODS TO MANAGE STUDENT LOAN PAYMENTS WHICH CAN AFFECT YOUR CREDIT SCORE Lan cnslidatin Lan cnslidatin is a strategy many brrwers use t try t get lwer payments. The value f this apprach is the brrwer can make smaller mnthly payments ver a lnger perid f time. Incme-based repayment an alternative t cnslidatin is t cntact the party cllecting n the lan and state that yu want t review yur eligibility fr a new lan and want a reasnable and affrdable repayment plan. Public Service Lan Frgiveness (PSLF) - In 2007, Cngress created the PSLF Prgram t encurage individuals t enter and cntinue t wrk full-time in public service jbs. Under this prgram, brrwers may qualify fr frgiveness f the remaining balance due n their eligible federal student lans after they have made 120 payments n thse lans under certain repayment plans while emplyed full time by certain public service emplyers. What must I d t have any remaining balances n my Direct Lans frgiven under the PSLF Prgram? Yu must make 120 n-time, full, scheduled, mnthly payments n yur Direct Lans. Only payments made after Octber 1, 2007 qualify. Yu must make thse payments under a qualifying repayment plan. When yu make each f thse payments, yu must be wrking full-time at a qualifying public service rganizatin. Persnal Financial Management fr Transitin Participant Guide September 2014 page 36

42 What lans are eligible fr frgiveness? Only lans yu received under the William D. Frd Federal Direct Lan (Direct Lan) Prgram are eligible fr PSLF. Lans yu received under the Federal Student Lan (FSL) Prgram, the Perkins Lan Prgram, r any ther student lan prgram are nt eligible fr PSLF. If yu have FSL and/r Perkins lans, yu may cnslidate them int a Direct Cnslidatin Lan t take advantage f PSLF. Hwever, nly payments yu make n the new Direct Cnslidatin Lan will cunt tward the 120-mnth payment requirement fr PSLF. Payments made n yur FSL r Perkins lans, even if they were made under a qualifying repayment plan, d nt cunt as qualifying PSLF payments. If yu are interested in cnslidating yur FSL r Perkins lans int a Direct Cnslidatin Lan, please visit lancnslidatin.ed.gv fr mre infrmatin and an electrnic applicatin. If yu d nt knw what type f lans yu have, please visit nslds.ed.gv. Cancelling yur lan due t serius prblems with the schl yu attend Yu can seek t cancel yur student lan due t serius prblems with the schl yu attend nly under the fllwing eligibility criteria: Clsed Schl Unpaid Refund False Certificatin Disability cancellatin yu may ptentially qualify t cancel yur lan if yu are permanently and ttally disabled. In general, this cancellatin applies nly if yu became disabled r yur disability wrsened after yu tk ut the lan. Persnal Financial Management fr Transitin Participant Guide September 2014 page 37

43 MODULE PREREQUISITE N/A COMPETENCY Participants will evaluate salary and the ttal cmpensatin package LEARNING OBJECTIVES Participants will: Analyze military cmpensatin and cmpare t civilian cmpensatin Cmpare cmpensatin packages between Cmpany A and Cmpany B Identify different types f civilian healthcare benefits and ptins that affect pay Navigate websites t find infrmatin abut Preferred Prvider Organizatins (PPO), Health Maintenance Optins (HMO), Pint f Service (POS), Cafeteria Plans, and Affrdable Care Act. COST OF LIVING ANALYSIS Many f yu will be relcating t anther area when yu transitin. It is imprtant t understand the impact t yur financial plan and verall budget. Sme areas t cnsider include: Salary Husing Utilities Taxes (including tax benefits fr Veterans) Fd, child care, cmmuting csts, clthing, entertainment, schl csts, climate, medical insurance Persnal Financial Management fr Transitin Participant Guide September 2014 page 38

44 Example scenari: Imagine yu are an E-4 transitining frm active duty at 4 years. Yur base pay is $2, r $26,388 a year and yu live in the prximity f Jacksnville, NC. Yu are planning t mve t Dallas, TX. Yur salary cmparisn accrding t Bankrate.cm wuld be $25,116 Yur hme price will decrease frm $243,332 t $197,357. What will the interest rate be at the time will yur mnthly payment drp? Will yu be carrying mre than ne huse? What abut renting csts vice buying what is the difference? Health Care will increase frm $85 t $93 (estimate is prbably fr a single persn) What are cmpanies ffering in their benefit package? Hw much mre will yu be paying fr medical/dental premiums fr single/family, c-pays, deductibles, c-insurance, etc. What are dctrs charging at that lcatin? Ttal energy bill wuld increase frm $162 t $185 Is it gas, electric r prpane? Well r city water, etc.? Is it a cld r ht envirnment? Hw is yur hme built t save energy? Taxes (including tax benefits fr Veterans) Will yu lse r gain tax benefits fr being a Veteran? What are the prperty taxes n yur car, hme, persnal prperty? Will yu be paying state incme taxes nw? Hw much will yur car registratin and tags be at the new lcatin? Fd, child care, cmmuting csts, clthing, entertainment, schl csts Is yur cmmuting csts ging t g up? Will yu pay mre fr transprtatin? What is the cst f schl fr yur children? Will they be ging t public r private schl? Hw abut cst f activities? What is the cst f fd and clthing All f these factrs impact the ttal salary required t maintain yur standard f living in a new lcatin. Persnal Financial Management fr Transitin Participant Guide September 2014 page 39

45 These are resurces that have the tls yu need t determine these factrs, including TIP: Always remember that when lking at cst f living, salary, and expenses yu als ask fr the cst f the benefits when yu receive an ffer frm a cmpany. Yu may be surprised t find a larger salary ffer may be ffset by larger emplyee csts fr benefits. MILITARY TO CIVILIAN PAY Have yu researched where yu want t g? Have yu researched what jb yu want and the demand fr that psitin especially near yur new hme? Is the lcal market flded in yur desired ccupatin? What is the prjectin fr need in this psitin ver the next year, tw years, and 10 years? What is the unemplyment rate there? Persnal Financial Management fr Transitin Participant Guide September 2014 page 40

46 What d yu have that these individuals d nt have? D yu have the skills the emplyer is asking fr in the jb annuncements r better yet, have thse skills plus mre t beat the cmpetitin? And des yur resume explain this well, t the pint a cmputer can rank yur resume high ver the thusands that are in their databases and the Recruiter can easily identify in yur resume the skills they are asking fr? When seeking civilian emplyment, yu will need t determine a salary range that makes up fr all f the changes that will ccur in yur paycheck AND benefits. It is therefre imprtant t realize that yur expenses will increase as a civilian, and it s imprtant t include these cnsideratins when deciding n a salary range. Determining yur salary: In determining yur salary range, yu will first want t get a gd estimate f what the average salary is fr what yu want t d, where yu want t d it, and whether yu have the qualificatins required fr the jb. TIP: T get a better idea f an average salary range use these salary cmparisn calculatrs: Realistically determine yur wrth: Understand that salary cmparisns usually reference the skills, years f wrk experience, certificatins, and degrees needed t wrk in that career. It is imprtant that yu realistically assess yur OWN qualificatins and determine whether they match the jb requirements befre yu apply fr and negtiate a salary. Example: A transitined Veteran declined a salary ffer at a large rganizatin with gd upward mbility and the pprtunity t relcate t a variety f ther lcatins ver time. The salary ffer was $35,000 fr an entry level IT psitin (similar t a help desk persn). This prspective emplyee had n certificatins r degree, but he did have fur years military experience as a help desk technician. He had n ther related experience. After being ffered the psitin the Veteran respnded t the salary ffer by telling the Recruiter, I deserve $100,000 and I wn t take anything less. His buddies had tld him that the IT field was in demand and he was mving t an area f higher living csts. D yu think his salary expectatins were realistic cmpared t the hundreds applying? Hw d yu think that affected his finances as he went t each cmpany declining jb ffers? Persnal Financial Management fr Transitin Participant Guide September 2014 page 41

47 Research yur jb skill, career field, and jb prjectins: In this ecnmy sme cities have mre applicants than jbs, which allw them t ffer lwer salaries. What implicatins might this scenari have n yur budget? Track yur salary infrmatin: As yu find infrmatin abut salaries, write it dwn n the Cmpensatin Cmparisn handut t keep track f the many ptins yu have. This handut will serve as an invaluable reference pint t cmpare typical benefits as yu negtiate yur future cmpensatin package. Review the examples t better understand hw salary will change nce wrking in the civilian sectr. Service members may find the O*Net Online website useful in translating their MOC skills t civilian: The Bureau f Labr Statistics (BLS) website cntains infrmatin that can help yu determine wages. COMPENSATION COMPARISON S what is a cmpensatin package? It is the ttal value f an emplyee s salary, benefits, and ther payments (such as bnuses and cmmissins). Once yu knw the exact incme replacement amunt yu will need, yu can then cmpare different cmpensatin packages. TIP: When cmparing salaries, yu must als cmpare the benefits packages. It s nt just the dllar amunt in yur paycheck that is imprtant. Scenari: Yu might cmpare a jb that is paying yu an extra $500 in base pay, but yu must pay ut f pcket 75% f csts fr yur healthcare cverage. Yu may find that thse premiums will run in excess f the additinal $500 yu will receive in base pay. It might be wrth cnsidering anther ptin that may have a slightly smaller base pay, but a mre rbust benefits package. Persnal Financial Management fr Transitin Participant Guide September 2014 page 42

48 NOTE: Benefit start dates are imprtant t cnsider. Sme healthcare insurance plans wn t begin until after 60 r 90 days f emplyment. This means yu culd ptentially be withut cverage. In additin, sme cmpanies are changing r evaluating their health benefit packages in regard t what they ffer, hw much they pay, and hw much the emplyee pays. T avid a break in yur healthcare cverage, talk t Tricare and the representatives during yur class prir t transitin t see what is ffered t transitining Veterans and during a jb ffer speak with the cmpanies Human Resurce manager fr specific infrmatin n waiting perids assciated with the healthcare plan the emplyer is ffering and a benefit cst sheet fr csts. T get a mre detailed lk at all f the pay and benefits that are ffered, review the Cmpensatin Cmparisn handut. This tl helps yu cmpare different cmpensatin packages. As yu receive jb ffers and benefit packages, use the handut t track and cmpare them, t ensure yu are receiving a cmparable wage and benefits t what yu are currently receiving in the Military. This is hw the Cmpensatin Cmparisn tls wrks: At the tp f the page in the far left, Clumn A cntains the type f benefit Next, Clumn B is the natinal average f pay r benefits fr all civilian emplyees This clumn will be especially helpful in cmparing future salary ffers Clumn C is the pay and benefits yu are currently receiving in the Military The next three Clumns D, E, and F are fr yur use in helping yu cmpare ther ffers yu might receive Be sure t nte that Clumn D is a listing f benefits included in the federal emplyment cmpensatin package, and Clumns E and F are used t write in details f future jb ffers s they can be cmpared t yur military cmpensatin and the natinal average fr U.S. emplyees. Persnal Financial Management fr Transitin Participant Guide September 2014 page 43

49 Instructins: Starting with the tp rw (the salary rw), place the amunt f current pay yu have calculated and the estimated equivalent civilian pay yu will need in the salary rw under Clumn C This shuld be the amunt discussed previusly (base pay and ther allwances). Then, spend sme time researching ther natinal wage averages fr jbs yu are interested in by lking at As yu start receiving ffers, make sure t place the base pay amunt in the Salary rw under Clumns E and F NOTE: The next sectin n the handut is related t retirement. Depending upn the length f yur service in the Military, yu may be eligible fr military retirement. If nt, all Service members have had the pprtunity t cntribute t the Thrift Savings Plan (TSP) which can be used t jump start yur civilian retirement plan. Cmpare yur current retirement plan ptins t yur jb ffer retirement benefits. Cmpare any matching funds that a future emplyer may cntribute. Always cntribute at least the amunt that yur emplyer is ging t match if yu dn t yu are missing ut n additinal mney in yur pcket. Yu may have t wait a while t access it but it is wrth it. Lk at the vesting schedule that each emplyer ffers. Vesting is the amunt f time yu must wait until emplyer matching funds becme yurs. This is imprtant t knw when yu are deciding hw lng t stay with a cmpany. Write in the details f jb ffers fr each additinal sectin n the handut (healthcare, insurance, and ther benefits) t cmpare what yu are currently receiving t that which will be needed as replacement incme r benefits. TIP: Fr mre infrmatin n vesting and specifics f retirement plans, see yur installatin Persnal Financial Prfessinal. BENEFITS PACKAGE When discussing Ttal Cmpensatin, benefits is a significant factr t cnsider. Often times when we hear the term benefits we think nly f health/medical care, hwever cmpanies tday, in rder t be cmpetitive, are ffering mre and mre perks that fall under the umbrella f benefits. Persnal Financial Management fr Transitin Participant Guide September 2014 page 44

50 HEALTH CARE Let s first briefly discuss health/medical benefits, as this is a significant change t cnsider. As a Service member, yu have cme accustmed t having yur health/medical benefits cvered in full, nt needing t wrry abut the type f cverage r the assciated csts. As a civilian, medical care cverage will becme an imprtant factr as yu lk fr a new emplyer and have t cnsider all f aspects included in healthcare namely quality and cst. Yur future emplyer can ffer yu details n each f the cverage plans they ffer and can answer any questins yu might have. Here are sme types f cverage plans: Preferred Prvider Organizatins (PPO) Health Maintenance Optins (HMO) Pint f Service (POS) Affrdable Care Act The Affrdable Care Act uses Health Insurance Marketplaces designed t help yu buy health cverage by cmparing plans, asking questins, and enrlling in the plan. Cafeteria Plans In a cafeteria plan, an emplyee receives a certain number f dllars frm the emplyer t purchase" particular cmpnents f a benefits plan. Fr general infrmatin n each type f plan, visit the fllwing websites: NOTE: Plan cverage details and csts will vary, s be sure t ask questins and get thrugh answers s yu can make an infrmed decisin abut yur healthcare. Persnal Financial Management fr Transitin Participant Guide September 2014 page 45

51 ADDITIONAL COMPANY BENEFITS (PERKS) Belw is a list f perks that emplyers may ffer that shuld be cnsidered in yur financial planning: Transprtatin reimbursement such as public vuchers r free parking Discunted/free gym membership Pays a larger prtin f yur insurance Free life insurance (yu and family) Strng retirement package shrt vesting perid; cntributin matching, etc. Significant Vacatin/Persnal/Sick leave (immediate, accrued, can g in the hle?) Shrt-term and lng-term disability (fully cvered by emplyer?) Prmtin pprtunities (hw quickly, what are the expectatins?) Mney fr educatin and certificatins (Is there a cmmitment fr this?) Relcatin services, cmmitment t keeping yu emplyed with cntract changes Jb lcatin (state with n state incme tax; lw cst f living; gd cmmute) Cmpany investment plan (stck ptins, etc.) As yu can see there is s much mre t evaluate besides the salary when analyzing a Full Cmpensatin Package. TIP: Fr further help, cntact yur installatin Persnal Financial Prfessinal and yur Transitin Assistance manager at the installatin Family Center r cntact Military OneSurce Persnal Financial Management fr Transitin Participant Guide September 2014 page 46

52 MODULE PRE-REQUISITE N/A COMPETENCY Understand resurces fr retirement/lng-term gals including hw retirement investments can lwer the taxes yu pay every payday LEARNING OBJECTIVES Participants will: State where t find TSP infrmatin and regulatins in rder t understand significant restrictins and penalties that can affect yur finances ( State the difference between a Defined Benefit Nn-Cntributin (Pensin) Plan as cmpared t a Defined Cntributin Plan Describe a cmmn vesting schedule (irs.gv) Navigate resurces t include VITA, state tax calculatrs, militarypay.defense.gv/pay/tax/01_allwances.html Lcate and cntact persnal financial educatr lcated in Family Centers, as applicable. Lcate and cntact installatin legal ffices fr Wills, Pwers f Attrney, Estate/Tax Planning, and ther legal dcuments, as applicable Understand the cncept f cmpund interest Explre investment vehicles such as stcks, bnd, mutual funds and ther investments Persnal Financial Management fr Transitin Participant Guide September 2014 page 47

53 THRIFT SAVINGS PLAN Service members wh participated in the Thrift Savings Plan (TSP) while in the Military have ptins available t them when leaving military service: Leave the funds in yur TSP accunt (fr accunt balances f at least $200. Yu may be able t cntribute utside funds t it later n.) Transfer yur TSP directly int anther eligible accunt, such as an IRA r a civilian 401(k) plan and Transfer yur TSP accunt t a qualified annuity Withdraw yur TSP funds subject t substantial tax and fees. and Warning! There are deadlines and rules n withdrawals. If yu withdraw the funds yu will be taxed n the withdrawal and will be charged a 10% penalty n the withdrawn funds if the withdrawal is made prir t age 59 1/2. It is a gd idea t cnsult with a financial specialist prir t making a withdrawal frm a tax deferred investment accunt. Fr mre infrmatin n TSP ptins, withdrawal deadlines, taxes, and ther details cncerning TSP, call the ThriftLine at: 1-TSP-YOU-FRST ( ), r visit the TSP website at TIP: Seek a tax advisr/planner r VITA persnnel if yu have questins regarding tax implicatins t yur federal/state taxes. Yur Installatin Persnal Financial Cunselr can prvide yu with basic infrmatin n the tax implicatins. RETIREMENT Regardless f whether yu are separating r retiring frm the Military, there are many factrs yu will want t cnsider in making financial plans fr the future. Sme f yu may be mre cncerned with getting a jb r int schl than retirement planning. Hwever, in tday s jb market yu have t cnsider retirement ptins early. The dds f wrking at a cmpany fr a set number f years and leaving with a pensin are diminishing. Mst emplyers have prgrams called 401Ks r ther similar plans intended t help yu save fr retirement. An emplyer may match a certain percentage f what yu put in but yur retirement planning is up t yu. Savings accunts and mney market accunts are tw ppular ptins many Americans use t grw their nest eggs. Persnal Financial Management fr Transitin Participant Guide September 2014 page 48

54 This sectin discusses basic infrmatin that is pertinent t retirement planning and emplyment cnsideratins as yu prepare fr transitin. Sme f the first questins that yu shuld ask the Human Resurce representative f yur ptential future emplyer are: When d the cmpany cntributins start (is there a waiting perid after hire)? When is my accunt credited with 100% f the cmpany s cntributins as my wn (vested)? Des the cmpany use a graduated vesting schedule where I receive a percentage at certain specified dates, i.e. 10% at 2 years, 20% at 5 years, etc., r a cliff vesting schedule? These questins nt nly prvide yu with baseline retirement infrmatin, it als cnveys t the emplyer that yu are savvy when it cmes t benefits and that yu understand the imprtance f this aspect f ttal cmpensatin. We encurage yu t ask yur Installatin Financial Cunselr abut these tpics. Many installatins ffer classes n retirement planning. RETIREMENT PLANS There are tw general categries f retirement pensins prvided as a result f emplyment: 1. Defined-Benefit Plan: A defined-benefit plan is the traditinal cmpany pensin plan. It is called a defined benefit because the ultimate retirement benefit is definite and determinable as a dllar amunt, r as a percentage f wages. T determine these amunts, defined-benefit plans usually base the benefit calculatin n a cmbinatin f the emplyee s salary and years f emplyment. The military retirement pensin is an example f a defined-benefit plan. Funded mstly by the emplyer Respnsibility fr the payment f the benefit and all risk n funds invested t pay ut that benefit rests with the emplyer Like separatin pay and unemplyment pay, it is als cnsidered a type f cmpensatin Persnal Financial Management fr Transitin Participant Guide September 2014 page 49

55 2. Defined-Cntributin Plan: A defined-cntributin plan is a qualified retirement plan in which the cntributin is defined, but the ultimate benefit t be paid is nt. These plans take many frms and include 401(k) and 403(b) plans, Rth 401(k) and the Thrift Savings Plan (TSP), Savings Incentive Match Plan fr Emplyees (SIMPLE) IRA, Simplified Emplyee Pensin (SEP) IRA, Emplyee Stck Ownership, (ESOP), and prfit sharing. Cntributins cme frm the emplyee A prtin may r may nt be matched by the emplyer Each participant has an individual accunt The benefit at retirement depends n the amunts cntributed and n the investment perfrmance f that accunt thrugh the years In such plans, the investment risk may rest slely with the emplyee because f the pprtunity t chse frm a number f investment ptins SOCIAL SECURITY INCOME Anther surce f retirement incme is yur federal Scial Security entitlement. The amunt f benefit t be cllected is based n yur age and the amunt withheld frm yur paycheck ver the curse f yur wrking life. Althugh there has been much public debate ver whether r nt the prgram will be available t future retirees, this incme stream can be taken int cnsideratin. The age at which yu receive yur maximum benefit has risen ver the years, s take int accunt the age yu expect t retire. The Scial Security Administratin prvides an nline retirement estimatr tl n its website at CUTTING TAXES WHILE INVESTING While saving and investing fr yur future are imprtant, failure t cnsider the tax implicatins f yur saving and investment vehicles can reduce their effectiveness. There is n ne size fits all slutin t saving and investing. Cnsider yur ptins and cnsult with a prfessinal if yu need mre infrmatin. Sme ppular investment vehicles that can reduce yur tax liability either nw r in the future are listed belw. Persnal Financial Management fr Transitin Participant Guide September 2014 page 50

56 Traditinal r tax-deferred accunts allw the investr t delay paying taxes n cntributins and earnings. Traditinal 401(k), IRA, TSP are sme pre-tax cntributin examples. An immediate benefit f these accunts is that the cntributins made t them are deducted frm grss pay befre incme taxes are calculated, s taxable incme is reduced tday Anther advantage t emplyer-spnsred plans, if ffered, is matching cntributins essentially free mney, and yu shuld always try t take advantage f the matching maximum Rth r after-tax accunts allw the investr t pay taxes n cntributins nw with the assumptin they will be taxed at a higher rate at the time f withdrawal. There are a number f theries with regard t Rth vs traditinal tax advantages. Sme theries lk at what will the tax rate be in the future, what type f deductins will yu have, and what will yur incme/tax bracket be upn retirement. Ultimately, nly yu can determine the best prduct fr yur needs. A chart is prvided t give yu sme basic pints fr cmparisn. NOTE: See yur installatin persnal financial prfessinal t discuss basic infrmatin n tax-deferred accunts such as Traditinal IRAs, Kegh plans, Simplified Emplyee Pensin-Individual Retirement Accunts (SEP-IRA) fr self-emplyed individuals, Rth IRAs, bnds, and ther investment ptins including ptins fr high incme earners. Persnal Financial Management fr Transitin Participant Guide September 2014 page 51

57 Persnal Financial Management fr Transitin Participant Guide September 2014 page 52

58 WHAT IS COMPOUND INTEREST? Cmpund interest is a pwerful weapn in yur retirement planning arsenal. Cnsider this example: Bb is 25 and has decided he shuld start saving fr retirement. His gal is t have at least $1,000,000 when he reaches age 65. If he starts saving tday and makes mnthly depsits t a 6% rate f return accunt, he must save $361 each mnth. That may sund like a lt t yu, but cnsider this. If Bb waits until he is 30 t start saving, he will need t save $700 each mnth. The bttm line is, the sner yu begin saving the lnger yur mney has t wrk fr yu. It is never t early t being saving fr retirement. Yur savings may be distributed thrugh regular savings accunts, mney markets, r a balance between that and ther investments such as stcks, bnds and mre. Get the pwer f cmpund interest wrking fr yu early. It will take significantly less ut f yur pcket if yu start when yu are yunger and it will increase mney available when needed at retirement. Let s lk clser at hw this cncept wrks. Investment tls such as stcks, bnds, mutual funds vary in risk. Typically higher risk prducts carry a higher return n investment. It is imprtant t determine yur risk tlerance befre making investments. It is equally imprtant t peridically review yur decisins as risk tlerance can vary with age and ecnmic climate. Befre transitin, attend a wrkshp n investing with yur Installatin Financial Cunselr. These nline calculatrs may assist yu when yu are planning fr retirement needs: Persnal Financial Management fr Transitin Participant Guide September 2014 page 53

59 MODULE PREREQUISITE N/A COMPETENCY Understanding husing chices. LEARNING OBJECTIVES Participants will: Evaluating csts f mving t the new lcatin Calculate husing csts including rental vs. hme wnership Determine resurces needed t address existing hme wnership cncerns, such as shrt sale, freclsure, negative equity, etc. (as applicable) Evaluate yur relcatin needs and seek assistance at yur installatin Family Center regarding yur mve Nw, that yu have a better understanding f yur salary and cmpensatin and sme f the factrs that relate t cst f living that went int yur salary cnsideratins yu will need t cmpare csts f mving, renting versus buying, hw t handle yur current hme, and where yu can get ideas prir t transitin. COSTS OF MOVING TO YOUR NEW LOCATION When researching the relcatin and cst f living the fllwing shuld be evaluated: What is it ging t take t mve yu and hw much will be ut f yur pcket? Mving truck, supplies, peple Transprtatin (gas, car repairs, ldging, fd) Dwn payment r first/last mnth rent Persnal Financial Management fr Transitin Participant Guide September 2014 page 54

60 Csts t set up residence (paint, curtains, tls, state vehicle tags/registratin, etc.) Csts t set up utilities (n military waiver/discunt anymre) Children r pet csts (prir, during and after the mve) RENTING VS. BUYING Beynd yur career, educatin, and gegraphic lcatin chices, ne f the mst fundamental decisins yu will likely need t make as part f yur transitin is husing specifically, whether it is mre cst effective t rent r buy. There are advantages and disadvantages t bth renting and buying, which will be discussed belw. Cautin: Staying with friends r mving back hme is usually nt the best chice fr a husing plan fr numerus reasns and it will definitely delay making a cmplete and successful transitin. RENT Renting may be a better chice fr yu if: Yu mve a lt (yur jb requires mbility) unless yu can stay in yur hme until the market is right t sell, yu may lse mney when selling yur hme. If yu cannt sell, yu may cnsider cnverting yur hme t a rental prperty and becming a landlrd. Yu are unfamiliar with the area befre taking the plunge and buying a hme, yu may want t identify a neighbrhd and rent there first t determine its ultimate lng-term desirability. Yu are lw n cash t cver the dwn payment, prperty taxes, and initial csts invlved in purchasing a hme withut depleting yur financial reserves. Renting can enable yu t save fr a dwn payment, clsing csts, and ther csts assciated with hme wnership. Maintenance csts f a hme greatly exceed thse f renting. If yu cannt imagine nt calling a landlrd t fix the backed-up bathtub drain, yu shuld cnsider renting. Yu prefer mre fixed expenses there are a lt f variable, unplanned expenses when yu wn a hme. Persnal Financial Management fr Transitin Participant Guide September 2014 page 55

61 Yu d nt want the risk lsing equity hwever yu will nt gain any equity either. Yu d nt mind nt being able t persnalize yur hme ften with renting yu take the dwelling as-is, and the landlrd may nt be willing t let yu paint r change anything. Tax advantages that cme with wning a hme may r may nt help yu. Yu d nt want t be a landlrd if yu buy a hme and have t mve, yu may be unable t sell it fr prfit r unable t sell it at all. As a result, many military hmewners becme landlrds. If yu d nt want t be a landlrd, renting may be best BUY Buying may be a better chice fr yu if: Yu hpe t grw equity If yu are mving t an area enjying high appreciatin in the value f residential prperty, yur equity culd grw and ffset the csts f selling shuld yu be transferred. Hwever, this is dependent n the current and future market. Market cnditins at the time f purchase and at the time f sale can vary dramatically. Markets als vary by regin, state, cunty, and even neighbrhd. While everyne will tell yu nt t buy at the peak f a market; peaks generally can t be identified except when evaluated in hind sight. Equity in a hme can be an excellent surce f retirement security, if the mrtgage is paid ff and equity in the hme grws. It culd als be a great lng-term investment as a rental as lng as yu can financially supprt all hme wnership requirements. Yu have mney fr the larger initial investment invlved in buying a hme. Yu want t itemize - t minimize taxes. Mrtgage interest n yur primary residence, real estate taxes, and sme ther hme expenses qualify as itemized deductins which can reduce yur tax liability. Hwever, itemizing generally desn t make sense unless yur itemized deductins exceed the standard deductin amunt. Yu are ready fr stability and a sense f cmmunity Buying a hme autmatically cmmits yu t a regin and a neighbrhd. Yu becme interested in the zning laws, the tax rates, the city s/cunty s plans fr expansin and grwth, and the appearance f yur neighbr s prperty. Persnal Financial Management fr Transitin Participant Guide September 2014 page 56

62 Yu d nt mind the pssibility f becming a landlrd if yu must mve. Market cnditins may make selling yur hme a pr ptin. Or, yu may have decided yu d like t eventually return t this hme. In either case, renting the prperty may be the best slutin fr yu. Rental prperty can generate psitive cash flw, but it is imprtant t keep a slid financial cushin fr unexpected expenses such as maintenance r times when the prperty is vacant r the rental incme is verdue. There are als tax implicatins with regard t cnverting rental prperties t r frm principle residences. Be sure t cnsult with yur tax advisr befre making these decisins. Yu have the financially ability t supprt multiple hmes if yu must relcate r yur rental prperty is vacant r the rental incme is verdue. Yu like t remdel/fix and persnalize yur hme. Yu can financially manage fluctuatin in expenses due t repairs, maintenance, etc. There are nline calculatrs that yu can use t help make an infrmed decisin abut yur husing plan and whether t rent r buy Cme t an Installatin Financial Cunselr s wrkshps n hme buying/ptins prir t transitin. Persnal Financial Management fr Transitin Participant Guide September 2014 page 57

63 MORTGAGE CONCERNS AND RESOURCES FOR HELP If yu plan n mving but yur hme is nt selling, yu are upside dwn n the mrtgage, yu can t affrd the payments then ptins t yu may be: Selling yur Hme Mdificatin f the lan Renting Shrt-Sale Freclsure Deed in Lieu f Freclsure Negative Equity This infrmatin can be very specific and cvers t much territry fr this curse. Hwever, yur Installatin Financial Cunselr and ther resurces mentined in this financial curse may be great resurces t help yu start the prcess f where and hw t wrk the prcess. Persnal Financial Management fr Transitin Participant Guide September 2014 page 58

64 Here are sme websites t btain additinal infrmatin: RESOURCES The Transprtatin Management Office (TMO), and Persnal Financial Management Specialist (PFM) can assist with infrmatin regarding: Entitlements Allwances Needs Csts Persnal Financial Management fr Transitin Participant Guide September 2014 page 59

65 MODULE PREREQUISITE N/A COMPETENCY Participants will understand hw taxes will change and be able t navigate free resurces t use during the curse f their transitin LEARNING OBJECTIVES Participants will: Navigate resurces t include irs.gv, VITA, state tax calculatrs, and military pay Lcate and cntact persnal financial educatr lcated in Family Centers, as applicable Cntact installatin legal ffices fr Wills, Pwers f Attrney, Estate/Tax Planning and ther legal dcuments, as applicable TAX IMPLICATIONS Nw that we have spken abut budgets, financial impact f transitining, cst f living, ttal cmpensatin, investing, insurance and health care a final tpic t cnsider is tax planning. Even thugh everyne has t pay federal incme taxes, yu have had special cnsideratins while yu have been in the Military. After transitining frm service, yu may find that yur tax situatin will change. It is imprtant t understand hw this will affect yur future financial situatin. NOTE: Fr tax purpses, separating Service members (nt retirees), will be able t view and print their W-2 frm the MyPay website at fr up t ne year after separatin. Retirees will have cntinued access t review persnal infrmatin via MyPay. Persnal Financial Management fr Transitin Participant Guide September 2014 page 60

66 UNDERSTANDING HOW TAXES AFFECT YOUR INCOME The fllwing are changes that yu need t prepare fr: Yu may nt have been paying state incme tax while in the military depending n the state yu listed as yur hme residence (such as Flrida r New Hampshire); hwever, as a civilian, yu may start paying an incme tax depending n where yu relcate. Als, while in unifrm yu have been receiving cmpensatin that is nt taxable. Except in a few circumstances, ALL yur civilian salary will be taxed at bth the federal and state levels. In sme areas cunty and city tax may als be assessed n yur incme. This is a key factr in determining what yur salary needs are. If yu simply say, I want a jb that will pay me what I am making nw, yu will fall shrt because mre f yur mney will g t paying taxes. Yu will n lnger receive an autmatic extensin n the April 15 tax filing deadline, unless yu specifically request it Remember, the IRS will charge interest n any unpaid amunt due n the April 15 deadline. Yu may have been exempt frm certain lcal and r prperty taxes while yu were serving that yu will nw be respnsible fr paying. Yu may have als received substantially discunted rates fr vehicle registratin and tags by registering as a military nn-resident where yu were statined. These expenses shuld be cnsidered as yu transitin. There are resurces that can help yu determine yur federal, state, and smetimes lcal tax bligatins. The IRS prvides a W-4 calculatr at Calculatr that can assist yu in determining the amunt yu shuld have withheld frm yur paycheck fr taxes. Many states have similar tls n their websites. Just as yu had a VITA site n yur installatin t help yu prepare and file yur taxes while n active duty, there are VITA sites in the civilian sectr as well. IMPORTANCE OF PREPARING FOR TRANSITION Understanding and preparing fr yur tax and incme changes will help yu realize what yur actual net incme will be cmpared t yur current military net pay. Understanding that these extra deductins will lwer yur net incme helps yu determine if yur pst-transitin incme will cver yur needs. Persnal Financial Management fr Transitin Participant Guide September 2014 page 61

67 While n Active Duty, cntact the installatin legal ffices fr wills, pwer f attrneys, estate/tax planning and ther legal dcuments, as applicable, prir t transitin. After separatin yu will have t pay a civilian lawyer r ther prfessinal fr this service. Legal services are free while yu are in the military, s take advantage f these resurces t create/update yur wills, pwer f attrneys, etc., befre yu leave active duty. Yu can save hundreds f dllars by nt having t pay the csts f these services in the civilian sectr. These items will save yu and yur family a lt f wrk and mney if these are dne t prtect yur assets and yur family. Wrk with yur tax preparer r use the websites mentined in this sectin t make an infrmed estimate f yur prjected withhldings and exemptins t determine yur future taxes Yur state may als have its wn state incme tax, prperty tax and ther calculatrs. Persnal Financial Management fr Transitin Participant Guide September 2014 page 62