4 Big Money Mistakes Military Families Make

A couple is frustrated with home buying.

We have often discussed mistakes that military families make with their personal finances. It's true that even small mistakes can wear away at the foundation of your financial plans, but big mistakes will break up that foundation even faster.

These are the four big mistakes that I see military families make regularly:

1. Rolling Over Negative Equity in Vehicles

When you're stuck owing more on a car than it is worth, it seems like an amazing thing when a dealership says, "Oh, we'll take care of that for you." Unfortunately, what "take care of that" usually means is that it will take the negative balance from that vehicle and add it to the loan for your new vehicle. What seems like a great solution is actually a disaster in disguise.

You're instantly underwater on your next vehicle. Unless you had a good-sized down payment (and you wouldn't be rolling over negative equity if you did), you're almost always underwater on a new car loan. Adding negative equity just puts you even more underwater.

You also usually end up with a higher interest rate, and a longer term to the loan, which means that you're more likely to be underwater the next time you need to replace your vehicle.

2. Leasing Anything

Don't lease stuff. That includes cars, washers and dryers, and bedroom furniture. I recently learned that you can lease DOGS. Seriously.

There are two main problems with leasing, and they both boil down to the total cost to own. For smaller items, it's simple math: The cost to lease a washer and dryer is almost always several times the cost to purchase the same item outright.

As an example, I looked up a basic clothes washer available in the Fort Hood, Texas, area. The washer sells for $629 at Lowe's, and you might be able to get the 10% military discount (depending on their restrictions.) That same washer is available at a nearby rental center for $86.63 per month for 18 months, which makes a total of $1,559.34. That's two and a half clothes washers! There is no way this makes sense.

For vehicles, the math is a little more complicated. Monthly payments may be lower, but there's a buyout at the end of the lease term, and you are limited on the amount you can drive the vehicle. There may be a rare occasion where a lease works out, but they are few and far between, and you generally can't know for sure until you're completely out of the lease.

3. Buying a House Without an Exit Strategy

The urge to buy a house is strong, but buying a house is risky in the best of situations. Throw in military service, and buying a house is a big risk, mostly financially but also emotionally.

Thankfully, there are ways to mitigate that risk. These include a good size down payment to protect against being underwater if you need to sell sooner than expected, or if the market is lower when you need to sell. You also need a solid emergency fund for all those fun surprises that come with home ownership.

Lastly, you need educated, thoughtful and mathematically sound exit strategies: What will you do with the house when you move? Just saying "We'll rent it" or "We'll sell" is inadequate; your plan needs to include analysis of the costs and benefits of each option, including a wide range of variables that need to include market value, costs to renting or selling, short- and long-term tax implications, impact on other financial goals, and much more.

4. Not Contributing to Retirement Accounts

Thinking about saving for retirement is hard, especially when it seems like your budget is already too tight. But even small savings at a younger age add up quickly, so it is important to make it a priority. Military families can utilize pay deductions, allotments and electronic funds transfers to make saving simple.

The military's Thrift Savings Program (TSP) is a very low-cost option for tax-advantaged retirement savings, and if you're in the Blended Retirement System, you need to contribute to the TSP to get the full benefit.

Both the military member and the spouse can contribute to Individual Retirement Arrangements (IRA), and an IRA is a great tool for non-working spouses to save for their retirement.

While there are plenty of other ways to make mistakes with money (and I've done a lot of them!), these four problems are very hard to overcome. If you can avoid these four major money mistakes made by military families, you're a lot more likely to reach your financial goals and be in a solid place when you leave the military.

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