Several years ago, I wrote a series of articles likening personal finance to baking an apple pie. The idea was simple: Just as a great pie requires the right ingredients in the right proportions, so does a solid financial plan. Each piece plays a crucial role in achieving long-term financial security: spending wisely, protecting what matters, using debt responsibly, saving for emergencies and retirement, having essential legal documents and keeping a plan up to date.
This past holiday season, as I was in the kitchen making that very same pie, it hit me: While my apple pie recipe had undergone a few minor tweaks over the years (a little more cinnamon here, a touch more bake time there), the fundamentals remained unchanged. The same goes for personal finance. Life evolves, and financial tools and strategies shift, but the core elements of smart money management remain as relevant as ever, with some special considerations for military households.
So, in the spirit of revisiting a tried-and-true recipe with a fresh perspective, I’m bringing back these foundational financial principles. Let’s take another look at the essential ingredients that make up a well-rounded financial life. The other thing that nudged me in this direction was our USAA advice team’s own revisitation of our core advice principles.
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1. Spend Less Than You Earn
It all starts here. No amount of investing, saving or planning will work if you’re consistently spending more than you bring in. Keeping your expenses in check and living within your means is the foundation of financial stability. While USAA has seven core financial principles, my placement of this as No. 1 was very purposeful.
2. Protect Your Life, Loved Ones and Possessions
Insurance isn’t the most exciting topic, but when things go wrong, it can be one of the most important. Life, health, auto, home and disability insurance protect you and your family from financial catastrophe when the unexpected happens. A good plan ensures you’re covered but not overpaying for protection you don’t need.
Military members have Servicemembers' Group Life Insurance and, possibly, the Department of Defense Death Gratuity to help ease the financial stress on loved ones. But when they leave the military, they leave those benefits behind. Here are three options and an imperative.
3. Use Debt Responsibly
Debt can be a tool or a trap -- it depends on how you use it. Managing debt wisely means keeping balances low, paying on time and understanding how credit affects your financial future. A solid credit score opens doors, while poor debt management can slam them shut.
4. Keep Enough for Emergencies
Life throws curveballs. Having 3-6 months’ worth of expenses saved in an emergency fund helps you handle job loss, car repairs or medical bills without resorting to high-interest debt. It’s your financial buffer against the unexpected.
Two factors that often prompt military families to start setting aside more: owning a rental property and transitioning out of the military. Here’s what to do.
5. Save Now for Retirement
“Now” is always the best time to start saving for retirement. OK, I hear you: Decades ago would be better than “now,” but whether you’re contributing to the military’s Thrift Savings Plan (TSP) or a 401(k), IRA or other retirement account, the goal is simple: Accumulate enough assets to replace your income when you stop working. And the sooner you start, the less painful it is.
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6. Have a Will and Other Legal Documents
Estate planning isn’t just for the wealthy; it’s for anyone who wants their wishes carried out. A will, power of attorney and beneficiary designations ensure your loved ones aren’t left with legal headaches. And as I learned firsthand when updating my mother’s power of attorney after her Alzheimer’s disease diagnosis, these documents need to be revisited as life changes.
7. Make a Plan, Review It and Keep It Up to Date
Your financial plan is your road map. But just like a map needs updating when new roads appear, you should review your plan regularly -- at least once a year, or whenever a major life event occurs. Marriage, children, job changes and even shifting financial goals all require adjustments to keep your plan on track.
While the fundamental principles haven’t changed, life has. The past few years have brought rising costs, new financial tools and shifting priorities for many people. That’s why it’s worth revisiting these core elements of financial advice, tweaking the “recipe” where needed, but ensuring that the essential ingredients remain in place.
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