Financial Readiness

Finances can be tricky. You think you're on top of everything, then something unexpected happens. Living paycheck to paycheck is a major stressor — not just personally, but professionally too, because it spills into how you do your job. There are resources on base that can help.

Making well-informed decisions and practicing sound financial management — like budgeting — helps you, your family, and the Air Force in accomplishing the mission.

This section covers what financial readiness actually means, your responsibilities, sound practices (budget, savings, debt strategy, credit), bank accounts and financial services, insurance, investing, the Blended Retirement System (BRS), and how to spot predatory businesses that target service members.

Overview

Objective: Identify basic facts and general principles about resilience in the Air Force.

Learning Outcomes

• Define financial readiness and its importance.
• Recognize your responsibilities when managing money and who can assist.
• List and discuss sound financial readiness practices.
• Discuss bank accounts, financial instruments, and services, plus tips to keep in mind.
• Understand the concept of insurance and the general rules to know.
• Identify concepts and benefits of investing and the different ways to invest.
• Discuss the Blended Retirement System (BRS) and its benefits.
• Recognize and guard against unscrupulous businesses.

Foundational Competencies

• Decision Making — Makes well-informed, effective, and timely decisions.
• Resource Management — Careful and responsible administration of resources placed under an Airman's control with the intent to maximize readiness and lethality and improve organizational performance.

Summary

• Definition
• Responsibilities
• Sound Financial Readiness Practices
• Bank Accounts, Financial Instruments and Services
• Insurance
• Investing
• Blended Retirement System
• Guarding Against Unscrupulous Businesses

Definition

"Financial readiness is a state of readiness in which successful management of personal financial responsibilities supports a service member's ability to perform their wartime responsibilities."

Responsibilities

You're probably entering the DAF young, with little experience managing money. The DAF recognizes this and offers free training and counseling to help you and your family hit your financial goals. DAFI 36-2906, Personal Financial Responsibility, lists who can help you and what your financial responsibilities are.

The DAF's responsibilities to you

The DAF has no legal authority to arbitrate or resolve personal debt disputes — except to require a member to pay or divert any part of military income to satisfy a private debt. But the DAF does provide help through the Military and Family Readiness Center (M&FRC) and unit commanders.

The M&FRC provides financial-management education and other services through the Personal Financial Readiness Program (PFRP). Tools cover everything from setting up TSP, managing debt, beginning a savings plan, setting up a budget, avoiding identity theft, filing taxes, and investing wisely.

Unit commanders counsel members on financial responsibilities, review and monitor financial complaints, and initiate administrative or disciplinary action against members who continue to display financial irresponsibility.

Continued financial irresponsibility can come at a real cost to your career. Punishments may include:

• Unfavorable Information File (UIF) — file of derogatory information.
• Reduction in grade
• Control roster — a commander's rehabilitation tool.
• Failure to be recommended for promotion
• Derogatory remarks on your Enlisted Performance Report
• Trial by court-martial
• Discharge under other-than-honorable conditions

Many tools and people are available to help you avoid getting to that point. If you're in financial difficulty, seek help immediately.

Your responsibilities as a DAF member

You're required to pay your financial debts in a proper and timely manner. You're also responsible for providing financial support to your spouse and any children or relatives for whom you receive additional allowances.

The DAF provides services to help — but ultimately you're responsible for your own financial stability. Failure to pay just debts may result in:

• Creditors obtaining a court judgment against you.
• An involuntary allotment being taken from your pay.
• Charges under the UCMJ for continued financial irresponsibility.

Sound Financial Readiness Practices

Budgeting

A budget is a financial process that helps you set funds aside properly. It lets you monitor income vs. spending so you can save for future goals while meeting current expenses.

Use your budget as a guide — leave flexibility and room for adjustments. Time and effort invested in creating and following a budget brings major financial rewards.

Benefits of creating and following a budget

• Establish a positive cash flow (earn more than you spend).
• Achieve financial goals.
• Allocate money for savings, an emergency fund, investments and/or retirement accounts.
• Pay bills and necessities.
• Afford some "wants" or "nice to haves."

Negative effects of not creating / following a budget

• Serious financial problems
• Excess credit card and other debt
• Bad credit and bankruptcy
• Undue negative stress and relationship problems
• Administrative and disciplinary actions against you

Creating a budget

Four steps: identify income, track expenses, establish a budget, and finalize the budget by following it closely.

Step 1 — Identify all sources of income

If you need help understanding your LES and verifying your pay is correct, visit the M&FRC. Include any other sources of income (side gigs, spouse income, etc.).

Step 2 — Track expenses

Track for at least 2 months (3-month average is preferable). Familiarize yourself with the expense types:

• Variable expenses — payments that fluctuate each month (food, utilities, entertainment). Usually scalable.
• Fixed expenses — payments that are the same each month (mortgage, rent, savings). Consider using an allotment to pay allowable fixed expenses.
• Debts and other obligations — expenses you may not pay monthly (charge accounts, installment loans). Continually reduced as you pay the balance.

Step 3 — Establish a budget

After determining income and tracking expenses, place that info on a budget record. Your budget record should only contain a list of common monthly expenses.

The budget goal is maintaining a positive cash flow — spending less than you earn. With a positive cash flow, use the surplus to pay outstanding debts. Using surplus to pay off debt is acceptable if you already have 3–6 months of living expenses saved in an emergency fund.

If you have a negative cash flow, you need immediate changes. Either increase take-home pay or decrease expenses. Continued negative cash flow → eventual default → administrative and disciplinary actions.

Step 4 — Finalize the budget and follow it closely

Knowing exactly how much you make and expect to spend gives you flexibility for adjustments, helps avoid problems, and helps achieve your goals.

Practice sound spending habits

The key is striking the right balance between needs and wants. If you have difficulty controlling spending, get help. Seek financial-management assistance from your supervisor, first sergeant, or M&FRC. Confidentially, Financial Counseling is also available at most installations via free OSD Personal Financial Counselors — find them at finred.usalearning.gov/pfcMap.

Spending tips:

• Don't buy items on credit (unless for emergencies).
• Avoid impulse buying.
• Take only enough money to buy what you need; leave the rest of your money and credit cards at home.
• Ask yourself if you really need an item before buying it.
• Don't let aggressive sales staff pressure you into buying.
• Shop around to find the best prices.
• Save money by purchasing sale items (don't fall for flashy or gimmicky sales).
• Look for quality products.
• Weigh cost, dependability, and efficiency.
• Buy frequently used items in bulk (laundry soap, toilet paper).
• Look for items that can be repaired locally.
• Evaluate repair costs on big-money items.

Savings

Setting aside money for your future is essential to financial well-being. The key: a plan that accounts for short-term needs and emergencies AND long-term items like education and retirement. Two important parts of saving: an emergency fund and compound interest.

Emergency fund

Experts recommend saving at least 3–6 months of living expenses for emergencies (car repairs, family death, unexpected bills). Keep these funds in a separate account so you don't spend the money. Set up an automatic allotment via myPay so the money is taken from your pay and placed into your account.

If you have credit card or other high-interest debt, it's often wise to make minimum payments while using extra money to establish a temporary emergency fund of $1,000. Then redirect the extra funds to paying down consumer debt. Once the debt is gone, increase the emergency fund to 3–6 months of expenses.

Debt strategies

Avoiding high-interest debt

If you have financial problems, the M&FRC can set up one-on-one counseling and provides classes/programs free of charge.

The AFAS Falcon Loan is an interest-free loan up to $1,500 for emergency financial assistance. The rules are more relaxed than standard AFAS loans — making it easier for Airmen to get help without their first sergeant or commander needing to approve. This loan requires no budget or background information. Apply online at the AFAS Member Portal: https://portal.afas.org/my-applications/. Contact AFAS Emergency Assistance: 703-972-2604 or toll-free 877-246-7650, Option #1.

The Standard AFAS Loan is more restrictive than the Falcon Loan but uses the same Member Portal.

AFAS Emergency Travel Grant — DAF members on emergency leave orders requiring assistance with travel expenses may request this grant. It can cover expenses from the death/illness of an immediate family member (member's and spouse's parents, including stepparents, children, brothers, and sisters): airfare, vehicle rental, POV travel, lodging. AF IMT 988 must be uploaded as part of the case work to receive the grant.

American Red Cross — Armed Forces Service: 1-877-272-7337.

Another option: a low-interest loan from a credit union or bank.

If your situation gets so bad you can't make a payment, call the business before the payment due date and ask for more time or alternative arrangements. Reputable businesses will usually work with you to resolve issues — provided you're current on the debt.

Getting out of debt

Once you've found the lowest-interest loans possible, organize debts from highest interest charge to lowest. Make at least the minimum payment on all debts and pay extra on the highest interest debt. After the highest-interest debt is paid, move to the next-highest. Continue until all debts are paid in full.

Consider bankruptcy only as a last resort

Bankruptcy stays on your credit history up to 10 years and makes new credit difficult. Laws exist to help prevent consumer abuse and establish strict rules for those seeking bankruptcy. Before filing, talk with lawyers, financial counselors, legal representatives, and your security officer.

Checking your credit report

Review your credit reports from the three main credit reporting agencies — Experian, Equifax, Transunion. Look for mistakes and signs of fraud or identity theft (e.g., accounts you didn't open). Doing this protects your credit history so you can obtain loans in the future.

If fraudulent information is found, contact the credit reporting agencies immediately to place a fraud alert on your file and have it corrected. Report fraud to the police — most companies won't reimburse money lost through fraud without a police report on file.

Obtaining a copy of your credit reports is easy and free. You can receive a free copy from each of the three credit agencies once a year. Weekly reports can be requested online at:

• http://www.annualcreditreport.com
• 1-877-322-8228
• M&FRC can also provide a free copy of credit reports and credit scores.

Be cautious of other websites with similar names, phone numbers, or web addresses — many will try to charge you for the report or steal your identity.

Bank Accounts, Financial Instruments and Services

Checking accounts

An excellent tool to manage your money. Checking accounts offer several advantages — debit cards are safer than carrying cash.

Before setting up an account, compare services at banks, savings & loans, and credit unions. Ask:

• Is there a service fee for debit cards or other items?
• Does the account have overdraft protection, and how much does it cost?
• Does the account pay interest?
• What other benefits come with the account?

Types

• Individual — for one person; good if you're single.
• Joint — used by more than one person; good for families.
• Overdraft account — provides protection from costly overdrafts. Overdraft fees and policies vary.

Credit cards

Can sometimes provide more protection than debit cards. Be careful not to charge more than you can afford to pay back. Tips:

• Know your responsibilities before using them.
• Comparison-shop to obtain the card with the lowest interest rate.
• Avoid overspending — easy to run up high balances and slip into debt.
• Keep your card in a secure location; never leave it lying around.

Debit cards

Also called check cards. Different from a credit card because your financial institution deducts the purchase directly from your account. Credit card issuers send you a bill for items purchased.

Keep receipts and record transactions right away when using debit cards.

Government Travel Card (GTC)

The method of reimbursement for official costs incurred for TDY assignments — used for lodging, transportation, meals, and registration fees. Misuse or delinquency results in disciplinary action by your commander or supervisor.

Online banking

Ask your bank what online services they offer. Common options: account transfers, balance check, online bill pay, automatic payments, paperless statements. Some institutions allow check-deposit by scanning — amount deposited immediately.

Online banking is a great way to monitor financial transactions — checking the account daily helps catch erroneous charges quickly.

Security: Always safeguard username and password. If credentials get into the wrong hands, the effect could be devastating. Use two-factor authentication whenever available.

myPay

Access https://mypay.dfas.mil. myPay is a secure, convenient way to access pay information and manage many transactions:

• Review and print LES or W-2.
• Start, stop, or change direct deposit, allotment, or TSP contributions to Traditional (pre-tax), Roth (after-tax), or a combination.

• Note: When changing direct deposit accounts, don't close your old account until your money is deposited into the new one.

• Post a change of address.
• Access IRS withholding calculator and start, stop, or change federal/state income tax withholdings.

Note: ANG and AFRC personnel cannot set up allotments in myPay. DFAS cannot incorporate AFRC and ANG. Both components are only paid while under orders, and start/end times for allotments may conflict with actual time spent on orders.

Virtual Finance

The "virtual Finance" link on the AF Portal is a convenient financial-services resource for Airmen and civilian employees. Reduces time away from duties — accessible 24/7 wherever the AF Portal is.

DAF users have access to self-service tools for common finance issues:

• Military pay and travel; terminal leave; leave sell/buy-back; deployment allowance calculators; worldwide Financial Services Office (FSO) lookup.
• Permanent Change of Station In-processing System (PiPS).
• Direct access to the Citi Government Travel Card website.
• PCS, Temporary Lodging Allowance (TLA) and Temporary Lodging Expense (TLE) calculators.

Virtual Finance includes ~1,000 FAQs and 100+ "Instant Advice" pages.

Insurance

Consider your family's needs and obtain adequate types and amounts of insurance.

General rules before buying any insurance

• Contact your state insurance department for buying-insurance guidance and research.
  • State info: http://www.iii.org/services/directory/company-categories/state-insurance-department
• Comparison-shop and obtain at least three quotes.
• Get price quotes in writing and ensure they're for the same type of coverage.
• Research carefully — read the fine print and ask a lot of questions.
• Ask whether you qualify for discounts (e.g., military discount).
• Consult with a Personal Financial Counselor at the M&FRC before making coverage changes to your life insurance and SGLI.

Investing

Compound interest / earnings

Three major inputs influence compound interest: the amount invested, the return earned, and time. Time is very important — start early.

Example: Invest $200/month at 8% return each year for 10 years.

• Cumulative investment = $2,400/year = $24,000 over 10 years.
• With 8% return, year 9 balance = $2,344. That's close to your annual contribution by itself.
• Year 10 earnings on cash = $2,737 — considerably more than your $2,400 contribution. This is the synergy of compound earnings.
• After 20 years at $200/month and 8%, annual earnings will be $9,003 — almost 4× your annual contribution.
• After 30 years, annual earnings = $22,911 — almost 10× your annual contribution.

Getting started sooner gives you the time to let compound interest make money.

Investing makes your money work for you — but investments carry varying degrees of risk. There's always a chance of loss of principal. Investments can be complex — study them carefully and seek financial counseling through the M&FRC before purchasing.

Most popular investment types: mutual funds, stocks, the TSP, and IRAs.

Thrift Savings Plan (TSP)

A long-term retirement savings and investment plan available to active duty, Guard, and Reserve personnel. Provides the opportunity to set aside money for retirement and offers the same type of savings and tax benefits civilian employees have under 401(k) programs.

Individual Retirement Accounts (IRAs)

It's never too early to start thinking about retirement. Two types: Roth IRA and Traditional IRA. Both have annual contribution limits. If personal circumstances require you to withdraw funds before 59½, you face a potential penalty of 10%. Both allow gains to be tax-deferred, with a wide array of investments available.

The plans differ in when you pay tax:

• Traditional IRA — defer tax on current earnings on the money you immediately invest. You don't pay tax on the money initially invested, but you pay tax on withdrawals after retirement.
• Roth IRA — no tax savings up front. You're not required to pay tax on the money you withdraw at retirement (after 59½). Contributions come out first and are tax-free regardless of when withdrawn.

Blended Retirement System (BRS)

Introduction to your BRS

If you entered the Uniformed Services on or after Jan. 1, 2018, you're automatically enrolled in the BRS. This is your retirement plan.

Defined benefit

The BRS provides a defined benefit — a monthly pension payment for life, after 20 years or more of active-duty service.

• Multiplier — percentage of basic pay you receive for each year of service. Under BRS: 2.0% × years served × the average of your highest 36 months of basic pay.
• The longer you serve, the higher the benefit. If you retire at 20 years under BRS, you receive 40% of the average of your highest 36 months of basic pay, increasing by 2% for each additional year.
• Keeps up with inflation. The defined benefit has an annual cost-of-living adjustment (COLA).

Defined contribution

The BRS's defined contribution component is a way for service members to save for retirement, whether you serve 2 years or 20. The BRS provides government benefits toward retirement through the TSP, with access to a mix of investment funds via contributions to a Traditional (pre-tax) retirement account, a Roth (after-tax) retirement account, or both.

• TSP account. Visit myPay to make contribution changes. Also access your TSP account online at TSP.gov and move your money across TSP funds.
• Contributions. After 60 days of service, the DAF will contribute 1% of your basic pay into a retirement account in your name each month — Service Automatic Contribution, which doesn't come out of your pay.
• Matching contributions. After 2 years of service, if you contribute a portion of basic pay, the DAF will begin matching contributions in addition to the Service Automatic Contribution. Maximize matching by contributing 5% of basic pay.
• Vesting. Always vested in your own contributions and their earnings. Immediately vested in Service Matching Contributions and their earnings. To become vested in the Service Automatic (1%) Contribution, you must complete 2 years of service. All Service members with 2 years of service are considered fully vested.

Continuation Pay

Uniformed service members covered by BRS are eligible to receive continuation pay — a one-time, mid-career bonus payment in exchange for an agreement to perform additional obligated service. Each Service determines the commitment, but it must be a minimum of 3 years. Paid at 12 years of service as determined by pay date (may be paid any time during this period). This bonus is in addition to any career-field-specific incentives or retention bonuses.

• Eligibility — active duty. Available to active-duty service members (including AGR and FTS) able to enter into an additional obligated-service agreement.
• Amount — active duty. May be eligible for 2.5 to 13× your regular pay.
• Pay rates. Multipliers may be based on Service-specific retention needs, specialty skills, and hard-to-fill positions.
• Investing. Continuation pay (and other specialty pay, bonuses, and incentives) can be invested in your TSP along with basic pay, up to the annual maximum allowed by the IRS. Hitting the maximum before year-end can cost matching contributions.
• Timing. Eligibility to opt into BRS was based on years of service as of Dec. 31, 2017, with all of 2018 to opt in. If opt-in eligible but hitting the 12-year continuation-pay cutoff during 2018, you must enroll in BRS before that time to receive continuation pay.
• Taxes. Taxable continuation pay may push you into a higher income bracket. You may elect to receive payments in up to four equal installments over a four-year period to reduce tax liability.

Lump Sum

Under the BRS, service members may be eligible to elect to receive a discounted portion of retired pay up front. The decision is entirely up to you. If you don't choose the lump sum, you'll receive full retired pay upon retirement eligibility. If you opt for a lump sum, decide whether you want 25% or 50% of future retirement payments at retirement.

You may receive one lump sum payment or annual equal payments — one a year for up to four years. Monthly retired pay reverts to the full amount at full Social Security retirement age (age 67 for most).

• Trade-offs. Taking 25% or 50% lump sum means your monthly paycheck is 75% or 50% of your full retired pay until age 67.
• Cost. The lump sum is discounted to the present value based on a DoD discount rate published in June each year. A lifetime of equal monthly payments is usually worth more.
• Timing — active duty. If choosing the lump sum option as active duty, you must notify your Service no less than 90 days before retirement date. Funds are paid no later than 60 days from retirement.
• Taxes. A taxable lump sum may push you into a higher income bracket. Election to receive in up to four equal installments over four years is available to reduce tax liability.
• Survivor benefits. You may still fully participate in the Survivor Benefit Plan even if you elect the lump sum.
• Disability payments. If you expect a disability rating from the VA, disability compensation could be offset depending on your rating.

Retirement system contributions — TSP essentials

The TSP is a retirement savings and investment plan for federal employees and Uniformed Services. Same types of savings and tax benefits as 401(k) plans.

The TSP is a defined contribution plan — the retirement income you receive depends on how much you (and your Service) contribute and the earnings that accumulate over time. TSP savings can add to monthly retired pay even if you don't serve at least 20 years.

After 60 days of service, you'll be automatically enrolled in the TSP with a default contribution of 5% of basic pay into a Traditional (pre-tax) TSP account. Additionally, after 60 days, the DAF contributes 1% of basic pay (doesn't come out of your pay). The money automatically goes into a TSP Lifecycle retirement fund (L Fund) appropriate for your projected retirement age, unless you choose other TSP Fund options.

If you zero out contributions, you'll be automatically enrolled at 5% of basic pay each calendar year. After 2 years of service, you receive Service Matching Contributions. Automatic and matching contributions apply on the first 5% of basic pay; contributions above 5% aren't matched. Maximum match is 5% of your basic pay. If you stop making regular basic-pay contributions, the DAF Matching Contributions also stop.

Note for Guard/Reserve: TSP and similar civilian retirement plans (like a 401(k)) share the same annual contribution limit ($23,000 for 2024) under IRS regulations. Guard/Reserve members with more than one 401(k)-type account cannot contribute more than the IRS limit across all accounts in any calendar year.

Periodically log into TSP.gov to see how investments are doing — your TSP account is your responsibility.

Managing retirement finances — take control of your future

Think about where you want to be later in life. How are you going to get there? If you act now and pay yourself first when saving for retirement, you'll have more options later. The penalty for not taking action now will be measured in dollars later. It's YOUR choice and YOUR responsibility.

Guarding Against Unscrupulous Businesses

Congress enacted "The Military Personnel Financial Services Protection Act" to prevent the sale of abusive insurance and investment products to military personnel. The act mandates that state insurance departments maintain and provide a list of abusive companies and agents to military members.

Report abusive companies to:

• Chain of command
• Base Legal Office
• DoD Fraud, Waste and Abuse (FWA) Hotline: 1-800-424-9098

Summary

This section provided basic financial information to guide you on your financial journey. As a member of the DAF, there are businesses out there that will try to take advantage of you — it's up to you to avoid the temptation. Gaining and retaining control of your personal finances lets you avoid unnecessary stressors and focus on your professional life.