Monday, August 22, 2005

Financial Planning for Joe - Part I

I know Joe. I was, am, and always will be Joe. I know that drinking beer and chasing girls is synonymous with Duty, Honor, and Country. I blew all the money I made on my first tour. I had nothing to show for my first four years (except making E-6). I even had a buddy with a B.A. in Finance try and help me out. I was young, dumb, and invincible. The truth is that my buddy wasn't too specific and I wasn't going to puzzle out his advice when I could head to town. I've taken a lot of financial lumps... including a divorce that left me living in my truck. I understand my old buddy's motivation, I'm just gonna bring it down a couple levels. Let's get started with the counseling.

Alright Joe, you've made a serious commitment... you've joined the military. Maybe you have just joined and maybe you are getting ready to retire. Hopefully, no matter where you are in the journey, you have a plan. If you don't, this post is for you.

Once upon a time in this country you would finish your schooling (at some level), find a steady job and stay with it for thirty or forty years until it came time to retire. You then received a gold watch and a nice little pension. Hopefully in this time, you've put away some money and own your home. Unfortunately, this little piece of Americana belongs to my grandfather. You probably already know this. The problem is, despite (or possibly because of) all the literature out there, you don't know what the hell is supposed to replace this formula. It is confusing! Don't worry, you have plenty of time to figure it out... er, actually, you really don't have any time to waste. Waiting is costing you BIG bucks and hopefully this post will get you started down your road to financial success.

The first part of any planning process is to know the Commander's Intent. In this case you are the commander. It is up to you to call the shots, and frankly, no one else can or will do it for you. So, my first question to you is:
What is your vision of the future? Your intent?
Each person (or couple) has a different vision for their future. Some (apparently most) want to own a house. Personal or children's education, travel, aging parents, nest egg, retirement... some of the reasons people need to learn to save. So the first thing you have to decide is what it is that you desire for the future. What is your purpose?

For the sake of example, I will go with purchasing a house. What is that going to take? Clearly, where you live is an important factor in whether you can afford anything. Being stationed in the San Diego area may make buying a nearly impossible option. Regardless, the next question that you need to ask yourself is what it will take to make happen? How much is needed for a down payment? How much can I comfortably afford to spend on mortgage and taxes each month? Is my credit history good or do I need to put some work in to improve it? Should I use my Veteran's Administration home loan now or later (more detail on VA loans in future posts)? The more questions that you can answer, the better off you'll be.

Having more that one goal is not only understandable, but required.

The take-away from this post? 1) Don't wait to start saving, and 2) Defining goals is the first step.