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5 Financial Issues to Consider Before Joining the Military

Geoff Williams

When someone joins the military, there are generally a lot of reasons that factor into the decision. People tend to sign up because they love their country or want to experience adventure, or feel the need to test their mettle. Or they see it as a way to pay for their education or eventually advance into a solid career.

People join for a chance at a good future, but nobody really joins the military for the money. According to GoArmy.com, a private in the Army who's in service for about four months to two years can expect to make $18,194 a year. A staff sergeant in the Army for six years will pull in $35,226.

It's tough enough worrying that you might become target practice from some rogue dissident, without also having to fret that by joining the armed forces, you're about to embark on a life lurching from paycheck to paycheck. So with that in mind, if you're thinking of signing up or you have a spouse or son or daughter who is joining, here are a few financial issues to consider at the outset.

[Read: 5 Financial Challenges for Veterans and Military Families.]

Save for retirement now. The military offers retirement benefits, but the only people who benefit are those who serve at least 20 years, says Joseph Montanaro, a certified financial planner practitioner with USAA, the financial services company that specializes in helping the military. He adds, "Only about 15 percent of those who enter the service actually make it to retirement."

On that note, Levi Newman, senior author for the Veterans United Network, a hub for military news and advice, says one of the smartest things a young service member can do is invest in the Thrift Savings Plan, a defined contribution plan for members of the military and federal employees.

There are a lot of nuances in paying your taxes. When you pay Uncle Sam, there are a certain benefits and differences between a civilian's life and yours that you'll want to be aware of, which is why the tax-preparation software TurboTax just debuted TurboTax Military Edition. As the software will point out, if you're serving in a combat zone, your income received during that time is exempt from federal taxes.

If a military member is called to active duty and it causes financial pain, and that military member needs to raid his or her IRA, that military member can waive the 10 percent penalty tax for an early withdrawal. Reservists might be able to deduct the cost and maintenance of uniforms if they aren't allowed to wear them when off duty, and on and on the nuances go.

When you're overseas, spending and managing money gets even more difficult. With any luck, you'll have a family member who can help you, and if not, even in the most far-flung lands, you'll probably have occasional Internet access. But the more far-flung you go, the more difficult buying anything becomes, even for the military, which is how Aaron Negherbon came to start TroopsDirect in 2010.

After seeing how grateful a longtime buddy serving in Afghanistan was to get a 45-pound care package from him, Negherbon, who has never served in the military, started a service that collects donations and uses the money to buy and transport supplies to American soldiers who need them badly but can't get packages quickly due to the military's red tape.

[Read: How to Prepare Your Finances for Military Deployment.]

"A soldier can whip out a credit card, and go to [sites like] Amazon or U.S. Cavalry and buy what they need, and they'll be shipped to their APO [Army Post Office], but when you're a grunt making $20,000 a year, you shouldn't have to spend $200 on a good pair of decent boots."

Which may well happen if you're serving somewhere like Iraq or Afghanistan. You won't be rich, and you will be serving in a war zone, where safe shopping malls will likely be in short supply.

You will be a target of predatory lenders. The bad guys aren't always the ones shooting at you. Sometimes the bad guys are the nice folks who just want to help. All they ask is that if you can't pay them back in a couple of weeks, you give them your life savings or maybe your car.

Payday loan stores are barred from having military members as customers, ever since the 2007 National Defense Authorization Act was passed. Even so, not all states have the legislation to enforce the law properly, according to a 2012 report by the Navy Times. In general, con artists and shady lending companies know you may be struggling financially, and they will do their best to cater to you.

That is why Holly Petraeus, wife of former CIA director and retired general David Petraeus and assistant director for Servicemember Affairs for the federal Consumer Financial Protection Bureau, turned up at Fort Bliss in El Paso, Texas, on April 10. According to local media, she was there expressly to educate troops about predatory lending practices that are aimed squarely at military members and their families.

She told her audience that many of the loans designed for the military have annual percentage rates that range from 85 to 400 percent, and that, "the No. 1 cause for service members losing their security clearance is for financial reasons."

You will at least have many advocates trying to keep you and your money together. It isn't only Petraeus on the move, of course, who it should be noted was also promoting the Consumer Financial Protection Bureau's website for service members. There are numerous organizations throughout the country that exist to help the military, such as VeteransPlus, which offers financial literacy and education programs to the armed forces.

[See 50 Smart Money Moves to Make Now]

There are also many retail businesses that offer discounts to members of the military; the site Military.com has a discounts page that features a comprehensive list of them. Just know that by enlisting in the Army, Navy, Marines or what have you, you will constantly be in a tug-of-war against people who want to empty your pockets with high-interest loans and advocates looking out for you.

As Negherbon says, "You join your country to serve your country. You don't join it to get rich."

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