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Take the Pledge,
Become a Military Saver...
Military
Saves is a social marketing program to persuade, motivate, and
encourage military families to save money every month. The campaign
is a growing network of organizations and individuals committed to
helping and supporting military members and their loved ones build
personal savings arsenals to provide for their immediate and long
term financial needs. Visit www.militarysaves.org. Send us your savings
tips and your success stories! Email us at info@militarysaves.org,
Military Saves has
joined the social networking world...Find us on Facebook!
Savings Tips
Courtesy of www.choosetosave.org
- Try to buy with cash, checks, or debit cards. If
you use credit cards, get rid of all but one or two, and pay off
the balance each month. You can save hundreds or thousands of
dollars a year by avoiding credit card interest charges.
- Always do your grocery shopping with a list of
items you need -- and don't buy anything that's not on the
list. You can save hundreds of dollars a year by avoiding
impulse food purchases.
- Compare unit prices on labels when shopping (for
example, price per ounce). You can save hundreds of dollars a
year by purchasing items with the lowest price per unit.
- Avoid shopping at convenience stores. You pay for
the convenience -- the prices are usually higher than grocery
stores.
- Review your telephone and cable bills for services
you don't use and cancel them. If you subscribe to magazines you
rarely get around to reading, cancel the subscription. You could
save tens of dollars each month.
- Before buying a car, compare insurance, gasoline,
maintenance, and repair costs for comparable models. You can
save thousands of dollars over the life of the car by choosing a
model with low operating costs.
Save hundreds of dollars a year on gasoline by making sure your
car's engine is tuned regularly and your tires have enough
pressure.
What's Interest
By
Ian Burgess, Command Financial Specialist
"What's
Interest?" My brother replied when asked what his rate was on
his first purchase of a new car. Being a Financial Specialist,
it made me cringe to hear THAT coming from my own brother, but apparently
he isn't the only one clueless about this 5000-year-old
system. The Wall Street Journal recently reported that
63% of those surveyed did not know what interest rate they were
paying on their car loans.
You
can, and most of us do, pay interest on a variety of things like
houses, cars, and credit cards. No matter what type of loan you
have or the way it is calculated, it boils down to essentially the
same principle: interest is the price of credit. More
plainly put, interest is what you pay to a lender for the privilege
to use money you don't currently have, with a promise to pay it back
at a later date.
Now
that we've gone over the basics, let's look at why it is important to
know what your interest rates are. Imagine that you live
paycheck-to-paycheck and you make $24,000 a year. Assume
that every dollar goes to some type of monthly loan payment like a
house, car, and credit card. Maybe your average rate across all
your loan obligations is 10% a year meaning that $2,400 of your
hard-earned money is going to somebody else. Now if you never
used credit, and only used cash instead, you would have $2,400 more a
year to spend on whatever you want. It might mean
delaying your satisfaction a little bit, but you'll be better off in
the long run.
What
if I offered you $50 a month for doing 1 hour of work? In
the story of my brother's car purchase, all he knew was that the
monthly payment was $315 for 72 months. I calculated his actual
interest rate at about 12% APR. If he were to refinance the loan
at a 6% rate, his payment would be $265, a $50 savings a
month. Or, he could continue to drive his old car, put
that money into a savings account, and buy the same car with cash in
about 3 years (half the time it will take him to pay off his current
loan).
Here's
another way to look at it. The average personal credit card
balance is now $10,000 with the average interest paid on that debt at
$1,500. The amount of money lost to interest gets even worse
when you consider that consistently carrying a balance on your credit
card is essentially like paying interest on interest. That
means that whatever you buy today will end up costing 3 times as much
as the sale price. I know this is a worse case scenario but
it's not that uncommon. If you never got to the point of paying
interest on your credit cards, you'd get to keep that extra cash and
use it for emergencies, retirement, or on whatever you want.
Imagine how good it feels to do whatever you want.
The
bottom line is that the less interest you pay to lenders, the more
money you'll have to spend on yourself. How do you do
that? Live within your means, pay off your credit card balances
every month, and take an interest in your interest rates.
If you want a car that is not within your means, then you should
increase your means with a promotion, a second job, or maybe a
different job. Remember, your Personal Financial Managers or
Command Financial Specialists can always help you find ways to save
money and I think they aren't used nearly enough.
Think Twice
Before Cashing Out of Your Thrift Savings Plan
Courtesy
of www.saveandinvest.org
If you are
thinking about cashing out your Thrift Savings Plan (TSP) when you
leave the uniformed service, think twice. Or maybe three times. You
might be about to forsake a financially secure retirement.
When
you switch jobs before retirement, you usually can choose among
several things to do with your TSP nest egg:
It
may be tempting to choose the last option and use the money to buy a
new television, take a cruise or even to pay off a debt. And you
would not be alone in thinking that way: A recent study indicates
that 45% of employees cash out their employer's retirement plans when
they change jobs.*
But
cashing out before you are 59 ½ can cost you dearly, both immediately
and in the long run:
- If you do not transfer your
money to a traditional IRA or your new employer's plan within 60
days of receiving it, your current employer is required to
withhold 20% of your account balance to prepay federal taxes.
- If you keep the money, you
must pay federal income tax on your entire withdrawal (except
for tax-exempt contributions from combat zone pay). In addition,
you may also owe state tax on your distribution.
- Plus, the IRS will consider
your payout an early distribution, meaning you could owe a 10%
early withdrawal penalty on top of combined federal, state, and
local taxes.
When
all is said and done, you could end up with a little more than half
of your original TSP savings! In addition, you will owe tax annually
on any future earnings your lump sum generates.
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The
High Cost of Cashing Out
The repercussions of cashing out of your TSP could be enormous. For
example, let's assume you are 30 years old, and have a TSP balance
of $20,000. If you leave that money in your TSP account or put it
in a traditional IRA, and your account averages a 6% rate of return
over the next 32 years, your balance at retirement will be
$129,068, even if you do not make any additional contributions
during that time. Even if you have a shorter time horizon, you will
forgo significant savings opportunities by cashing out your TSP.
For example, if you are 45, your $20,000 will grow to $53,855 in 17
years. Keep in mind that even if you really need the money, you may
be better off borrowing from your TSP account. You may be able to
borrow at a lower rate from your account than you could from a bank
or other lender, especially if you have a low credit score. You
must be in pay status to obtain a loan, because your regular
monthly loan payments are made through payroll deductions. To learn
more about TSP loans, visit www.tsp.gov
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When
you leave military service, carefully examine the short and long-term
consequences before cashing out of your TSP account. After all, when
talking about tax-deferred savings plans, time is money.
Military
Saves was made possible in part through the generous support of the
FINRA Investor Education Foundation. Please visit www.SaveAndInvest.org.
Military
Saves is also supported by Wells Fargo Bank, Chase
Bank, and Dave Ramsey's Financial Peace University Military
Edition. Together, we can build wealth, not debt.
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