WASHINGTON (Army News Service, Feb. 26, 2007) - The Defense Department's "Military Saves" program kicked off yesterday with Military Saves Week, which will continue through March 4.
The program encourages servicemembers and their families to establish savings goals and set aside money for emergencies. Money management expert Suze Orman visited the Pentagon last week to lend her advice and record television spots that give military viewers tips on becoming financially fit.
"The first thing a Soldier needs to do is get rid of unintelligent credit card debt, and the second thing is to establish a high FICO score," said Orman, who hosts The Suze Orman Show on CNBC Saturday nights and has written five consecutive New York Times bestsellers on money management.
Intelligent debt is debt incurred at a low interest rate and can normally be paid off in three years. "Credit card debt at 18 or 21 percent is not intelligent debt so it should be paid off as quickly as possible - that's foremost," Orman said.
Developed by Fair Isaac and Company, the FICO score is a three-digit credit score that determines the likelihood credit users will pay their bills. It's based on the consumer's payment history, amounts owed, length of credit history, new credit and types of credit used.
More than 90 percent of credit lenders use FICO scores to determine borrowers' interest rates, according to Orman. The higher a person's FICO score, the lower his interest rate will be; the lower the FICO score, the higher the interest rate.
"It is absolutely imperative that Soldiers work toward getting the highest FICO score they can, above 760, because a FICO score determines absolutely everything in your financial life.
"Say you and your buddy buy identical $20,000 cars, both are sitting in the same driveway, and they were financed over four years. You have a FICO score in the 500s and your buddy has a FICO score above 760," Orman said. "It will cost you $78 more per month, or almost $4,000, more than your buddy over a four year period for the same $20,000 car - that's huge!"
Orman suggests Soldiers visit <a href="http://www.myfico.com"target=_blank> www.myfico.com</a> to find out more about FICO scores. She also recommends Soldiers request their credit reports from Equifax, Experion and TransUnion at <a href="http://www.annualcreditreport.com"target=_blank> www.annualcreditreport.com</a>, where they are free once each year.
After Soldiers pay unintelligent debt and establish high FICO scores, they should then create an emergency fund that could get them through eight to 12 months without pay. Savings can be built through a money-market savings account or a simple savings account, but Orman recommends Soldiers consider interest rates of return.
For retirement savings, Soldiers are eligible for the Thrift Savings Plan (<a href="http://www.tsp.gov"target=_blank> www.tsp.gov</a>). All Soldiers may contribute to the plan, but they do not receive matching funds like their civilian counterparts under the Federal Retirement System.
For younger Soldiers between ages 18 and 24, Orman suggests investing in a Roth Individual Retirement Account. "If you simply invest $100 a month into a Roth IRA between ages 20 and 60, at the age of 60 you'll have $1 million." But wait until age 30 to invest and that savings is reduced $70 thousand, she said.
"Yes, money going into the TSP comes off your earnings before taxes are taken, which is a plus. But should you need the money and you borrow from the TSP, if you don't pay it back within the prescribed time you'll be subject to income tax and a 10-percent penalty," she said. "So if you're in the TSP, just don't borrow from it."
With a Roth IRA, Soldiers can take after-tax money and invest it into a variety of investment choices - stocks, bonds, mutual funds. But the big difference is the original money in a Roth IRA can be borrowed from without penalty or tax though earnings must remain in the account until age 59 and a half, said Orman.
"In the same way in which Soldiers are trained how to use a rifle, how to protect themselves and everyone around them, they have got to use financial ammunition to protect themselves," Orman said.
Military Saves is part of "America Saves," a national campaign involving more than 1,000 nonprofit, government and corporate groups encouraging individuals and families to build personal wealth.
For more information and financial tools visit <a href="http://www.militarysaves.org"target=_blank> www.militarysaves.org</a>.
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