Money management for a mobile society.

This year's American Society of Military Comptrollers European Professional Development Institute (PDI) in Garmisch, Germany, focused our attention on the financial management objectives of the United States Army and the United States Air Force with the theme "Financial Champions--Reaching New Heights." And while at work in our various comptroller-related jobs, this is where we should be focused. But while we strive to be good stewards of taxpayer resources, how many of us are diligent stewards of our own money?

This was the question that one of the authors, Dr. "Just call me Jim" Young, posed in his PDI workshop, which he targeted at those of us who work for the Department of Defense all over the world. The title of his workshop was identical to the one for this article: "Money Management for a Mobile Society."

Mobile Society Defined

So what is a mobile society, and what makes it different from the American society we protect and defend? Those serving with or employed by our Armed Forces and those who support the military make up one of the best examples of a mobile society. We constantly relocate--which is expensive and makes real estate investment difficult. We usually don't have ready access to the host of hometown financial advisors that our less mobile con temporaries enjoy. Also, our efforts to obtain financial information take special interest and dedication to track successfully. Finally, more often than not, many of us are looking at a mid-life career change, which probably is a major financial paradigm shift.

So how do we keep up with the stay-at-home Joneses that make up our less mobile society? Let's take a look at "Jim's way," which uses the following components: a strategic plan to define financial goals and objectives; portability, which emphasizes the importance of self-education and experience; and portable investments that include mutual funds, stocks, and cash-like investments.

Strategic Plan

The game show Do You Want to be a Millionaire?, while entertaining, is not the way to wealth for a member of the mobile society. Wealth is built over time, using a simple formula:

Time + Money + Rate of Return = Financial Independence

To achieve financial independence, which is the usual goal of those who want to retire some day, patience is a major asset. It's not about get-rich-quick schemes and hot tips on the stock market. Rather, it's about growing wealthy slowly with a planned approach. Start by determining where you are now, understanding your tolerance for risk, identifying your financial objectives, translating those to goals that define where you want to be financially 5, 10, 15, and 20 years into the future, and writing it into a personal financial strategic plan. Add a few annexes that deal with final instructions, wills, and powers of attorney in the event of your untimely departure, and you've got the beginning of a living document that will guide your journey toward wealth.

Portability

It helps if you think of the way to wealth as a hobby, a life-long pursuit of something you do in your spare time for fun. Financial education becomes the focal point of this hobby as you discover the tools of wealth management and enhance your financial knowledge portability.

Some of the tools include knowing your net worth, developing a budget to control discretionary spending, educating yourself about financial opportunities, using the computer as an analytical tool and proven finance software products, discovering how to enter the market on-line, learning about taxes and insurance, and building a cash reserve. The library and various financial Web sites like the American Association of Individual Investors (www.aaii.com) and USAA (www.usaa.com) are great places to start your hobby.

Portable Investments

Savings, TSPs, IRAs, and Mutual Funds

We all begin somewhere and, when accumulating wealth, the best way to start is to build a cash reserve. Build this in a conservative investment that protects the principle and pays interest like a savings account or series EE and HH U.S. Savings Bonds. Pay yourself first using a payroll deduction that goes directly into your investment. As you grow your cash reserve, look into other investment opportunities like the Thrift Savings Plan (TSP) and Individual Retirement Accounts that match funds as the TSP does, and shelter your savings from taxes until you retire. Participate to the maximum in these investments and stick with them--you're in them for the long haul.

As you move up the income ladder and get more adept at managing your money, begin to consider other investments like certificates of deposit, preferred stock, corporate bonds, municipal bonds, and commercial paper.

Mutual funds should be next on your list of potential investments. Consider a fund's objectives and its fit with your personal investment objectives, review past performance, evaluate management of the fund, look over securities in the portfolio, and consider stockholder services. Purchase and hold mutual funds for the long term and grow your investment on a regular, disciplined basis (monthly payroll deductions) to take advantage of dollar cost averaging.

Insurance

The role of insurance primarily is protection against premature death. How much you need and what type has a lot to do with where you are in life and what the future looks like now. You need to place primary emphasis on those risks that potentially could wipe out your net worth. The things to consider include severity of loss, desirability of coverage, availability/cost of coverage, and the use of deductibles. Pick an agent who has experience in specializing in the type of insurance you want and who represents a sound company with a reputation for service.

When buying life insurance, look for a chartered life underwriter. Know the types of insurance available and buy what best suits your financial situation. Consider needs like final lump sum payments, readjustment income, family income until children are self-supporting, income for a surviving spouse after children leave home, and special needs like mortgage, emergency, education, and retirement funding. Focus on the important policy provisions like grace periods, incontestability, suicide, reinstatement, beneficiary clauses, and cash surrender values.

Special Note on the Stock Market

The stock market is no place for the beginning investor, and initial ventures into the market should begin with mutual funds. Mutual funds offer the best investment vehicle for the small investor to take advantage of the stock market and its growth potential. With tens of thousands of mutual funds to select from, you need to do your homework using tools like AAII and Morningstar (www.morningstar.com). Look for growth in small-, mid-, and large-cap stocks that produce income, preferably in a balanced/ index-type investment.

When you're ready for stock purchases, don't rely on "hot tips." Buy what you know about, use computer programs and on-line help to do your analysis, and watch the price/earnings ratio (high = market expects higher prices, and low = might signal a "good buy").

Real Estate

Real estate purchase (and rental to others when you're deployed) is the only real avenue to significantly shift your financial independence into high gear as a member or a former member of the mobile society. It's going to take some serious study on your part and a reasonable assurance that the rest of your financial house is in order to work this option beyond owning your own home. But if done right, the rewards can be substantial. The reasons for doing it include long-term appreciation using other people's money, tax relief, inflation protection, and equity building.

For most of us in the mobile society, buying and outleasing real estate is better left for the retirement years and second career planning; however, we can participate in this market and take advantage of tax relief by purchasing Real Estate Investment Trusts.

In a Nutshell ...

So what should you take away from all of this, and what should you do to build wealth as part of a mobile society? You need to start with a plan to establish specific financial goals, both short and long term. Use the computer and software programs to determine your net worth and monitor it constantly. Plan goals and objectives and prioritize them. Design a budget to control your discretionary spending. Pay yourself first and invest using payroll deductions. Keep learning via the Internet and your local library, and seek professional help when you need it. Use rigor and discipline to execute your savings/investment plan. Review and maintain your portfolio regularly. Create a will and final instructions, and record your overall game plan for those that may outlive you.

Execute, execute, execute.

And above all, enjoy your wealth-building hobby as you advance toward a sound financial future and a comfortable retirement.

Jack R. Van Den Beldt is a retired U.S. Army major, senior management analyst, and Business Practices and Stewardship advisor in the Manpower Division of ODCS, G8, HQ, USAREUR in Heidelberg, Germany. He is a member of the Heidelberg Chapter of ASMC.

Dr. Jim Young is a retired Air Force colonel who retired again as a university vice president. He currently teaches management, research, and statistics for a variety of schools, mostly with online universities so that he can travel and lecture.