Vets: Avoid These Costly Financial Mistakes Now

Top 10 Financial Mistakes Veterans Make (and How to Avoid Them)

Are you a veteran struggling to make your finances work for you? Many veterans face unique financial challenges after transitioning to civilian life, from understanding their benefits to managing new expenses. Are you making these common mistakes?

1. Not Creating a Budget (or Sticking to It)

A budget is the foundation of any sound financial plan. Without one, you’re essentially flying blind. I’ve seen too many veterans fall into the trap of spending without tracking, leading to debt and financial stress. Tracking your income and expenses is absolutely essential.

What went wrong first: Many veterans attempt budgeting with overly complex spreadsheets or apps that are difficult to maintain. They give up after a few weeks.

Solution: Start simple. Use a basic budgeting app like Mint or even a notebook to track where your money goes. Categorize your spending (housing, food, transportation, entertainment, etc.). Set realistic spending limits for each category. We recommend the 50/30/20 rule: 50% for needs, 30% for wants, and 20% for savings and debt repayment.

Result: With consistent budgeting, you’ll gain a clear picture of your financial situation. You’ll identify areas where you can cut back and free up cash for savings or debt repayment. You might find, as many of our clients have, that you’re wasting hundreds of dollars each month on subscriptions you don’t use.

2. Overlooking VA Benefits

Many veterans are unaware of the full range of benefits available to them. This is a HUGE mistake. The Department of Veterans Affairs offers a variety of programs, including disability compensation, healthcare, education benefits (like the Post-9/11 GI Bill), and home loan guarantees. It’s important to know what you’re entitled to.

What went wrong first: Vets assume the VA is difficult to navigate and don’t bother applying. Or they apply without proper documentation and are denied.

Solution: Thoroughly research your eligibility for all VA benefits. The eBenefits portal (part of the VA website) is a good starting point. Contact a Veterans Service Organization (VSO) like the Disabled American Veterans (DAV) for assistance with the application process. They can help you gather the necessary documentation and navigate the VA system.

Result: Accessing your VA benefits can significantly improve your financial situation. Disability compensation can provide a steady stream of income, while the GI Bill can cover the cost of education or training. Home loan guarantees can make homeownership more affordable.

3. Racking Up High-Interest Debt

Credit card debt is a silent killer of financial stability. The high interest rates can quickly snowball, making it difficult to pay off the balance. Payday loans are even worse, often trapping borrowers in a cycle of debt.

What went wrong first: Veterans turn to credit cards or payday loans to cover unexpected expenses or bridge gaps in income. They only make minimum payments, allowing interest to accumulate.

Solution: Avoid high-interest debt at all costs. If you have existing credit card debt, prioritize paying it down. Consider a balance transfer to a card with a lower interest rate. Explore options like debt consolidation loans. As an alternative to payday loans, look into services like Eagle Cash Card.

Result: Eliminating high-interest debt frees up a significant portion of your income. You’ll reduce your financial stress and have more money available for savings, investments, or other financial goals.

4. Neglecting Emergency Savings

Life is unpredictable. Unexpected expenses like car repairs, medical bills, or job loss can derail your finances if you’re not prepared. An emergency fund is a crucial safety net.

What went wrong first: Veterans prioritize other financial goals (like investing) before building an emergency fund. They assume they can rely on credit cards in an emergency.

Solution: Aim to save at least 3-6 months’ worth of living expenses in a readily accessible savings account. Start small, even if it’s just $25 per week. Automate your savings by setting up recurring transfers from your checking account to your savings account.

Result: An emergency fund provides peace of mind and protects you from going into debt when unexpected expenses arise. It allows you to handle financial emergencies without disrupting your long-term financial plans.

5. Failing to Plan for Retirement

Retirement may seem far off, but it’s never too early to start planning. Social Security alone is unlikely to provide enough income to maintain your current lifestyle.

What went wrong first: Veterans delay retirement planning because they’re overwhelmed by the complexity of it. They don’t understand the different retirement account options or how to invest.

Solution: Take advantage of retirement savings plans offered by your employer, such as 401(k)s. If you’re self-employed or don’t have access to a 401(k), consider opening an IRA (Individual Retirement Account). Contribute regularly, even if it’s just a small amount. The Thrift Savings Plan (TSP) is a great option for veterans who are also federal employees.

Result: Consistent retirement savings can compound over time, providing you with a comfortable retirement income. Starting early gives your investments more time to grow.

6. Not Understanding Taxes

Taxes can be complicated, especially for veterans. You may be eligible for certain tax deductions or credits related to your military service.

What went wrong first: Veterans don’t seek professional tax advice and miss out on potential deductions or credits. They make mistakes on their tax returns, leading to penalties or audits.

Solution: Consult with a qualified tax professional who understands the tax laws applicable to veterans. The IRS provides resources for military members and veterans. Take advantage of free tax preparation services offered by organizations like the Volunteer Income Tax Assistance (VITA) program.

Result: Proper tax planning can reduce your tax liability and increase your after-tax income. You’ll avoid penalties and ensure you’re complying with tax laws.

7. Investing Without Knowledge

Investing can be a powerful way to grow your wealth, but it’s important to do your research and understand the risks involved. Investing in stocks or other assets without proper knowledge can lead to significant losses.

What went wrong first: Veterans invest based on tips from friends or family without understanding the underlying investments. They chase “hot” stocks or invest in complex financial products they don’t understand.

Solution: Educate yourself about different investment options. Start with low-cost index funds or exchange-traded funds (ETFs) that track the overall market. Consider working with a qualified financial advisor who can help you develop an investment strategy tailored to your goals and risk tolerance. Do not put all your eggs in one basket! Diversification is key.

Result: Informed investing can help you achieve your financial goals, such as retirement, homeownership, or education. Diversification reduces your risk and increases your chances of long-term success.

8. Neglecting Insurance Needs

Insurance protects you from financial losses due to unexpected events like accidents, illness, or property damage. Not having adequate insurance coverage can be financially devastating.

What went wrong first: Veterans assume their VA healthcare covers all their medical needs. They don’t understand the importance of other types of insurance, such as life insurance, disability insurance, or homeowners insurance.

Solution: Assess your insurance needs and obtain adequate coverage. Consider life insurance to protect your family in case of your death. Disability insurance can replace your income if you become disabled and unable to work. Homeowners insurance protects your home from damage or loss.

Result: Adequate insurance coverage provides financial protection and peace of mind. It prevents you from being financially ruined by unexpected events.

9. Co-signing Loans

Co-signing a loan for a friend or family member can seem like a generous act, but it’s a risky proposition. If the borrower defaults on the loan, you’re responsible for paying it back.

What went wrong first: Veterans co-sign loans without fully understanding the risks involved. They assume the borrower will always make payments on time.

Solution: Avoid co-signing loans unless you’re absolutely certain the borrower can repay the loan. Consider the potential consequences if the borrower defaults. It can damage your credit score and strain your relationship with the borrower. I had a client last year who co-signed a car loan for his son; when his son lost his job, my client was stuck with the payments.

Result: Avoiding co-signing loans protects your credit score and financial stability.

10. Not Seeking Professional Financial Advice

Managing your finances can be complex, especially after transitioning to civilian life. A qualified financial advisor can provide personalized guidance and help you develop a comprehensive financial plan.

What went wrong first: Veterans are reluctant to seek professional financial advice because they’re afraid of the cost or they don’t trust financial advisors.

Solution: Consider working with a CERTIFIED FINANCIAL PLANNER™ professional who specializes in working with veterans. Look for someone who understands the unique financial challenges you face. Ask for referrals from friends or family.

Result: Professional financial advice can help you make informed decisions about your money and achieve your financial goals.

We once worked with a veteran, let’s call him John, who was struggling with debt and had no clear financial plan. He was a Marine veteran who had served two tours in Iraq. After working with us for six months, using a combination of budgeting, debt consolidation, and VA benefit optimization, he reduced his debt by 20% and increased his savings by 15%. More importantly, he felt empowered and in control of his finances.

One thing that nobody tells you is that finding a good financial advisor is like finding a good doctor. You have to do your research and find someone you trust and who understands your needs. Reading tips for veterans’ financial success can also help.

Your financial well-being is within your control. Taking steps to avoid these common mistakes can set you on the path to financial success. For more on this, read about tips to thrive after service.

Don’t let financial uncertainty hold you back. Take action today by creating a budget and exploring your VA benefits. Even small steps can lead to significant improvements in your financial well-being. It’s time to plan for a secure future.