How members of armed forces must plan their personal finances

Prableen Bajpai

Serving to ferry the goods and chattels, the ‘trunks’ bearing the black paint symbolize a constant in the lives of defence personnel. The only thing that changes on these trunks with each posting is the information printed on them, which reads, from Silchur to Mamum, Phaileng (Mizoram) to Ambala Cantonment, Pune to Leh, and so on. During my school years, I felt both excited, and a bit sad, when my dad’s posting orders would come. The orders to move meant a complete reshuffle of our world. Although peppered with unwitting eagerness regarding the possible adventures that lay ahead, leaving behind friends and starting from the scratch each time was hardly easy. Despite the hardships, I didn't want to leave this world and I married someone who adorns the olive green. My journey with the black boxes began again. Over the years, I have seen the brighter side of army life and its adversities.

Money matters on the backburner

The amazing life that the armed forces offer comes with unique its own challenges. The absence of permanency in many spheres of life puts many things in the backburner, financial management and planning being one of them. Here are two steps which should be followed to set the basics right.

During the entire service period, there are many years of separation from one’s family. While families are not allowed during field postings, many times, they are unable to join because the location is far-flung and/or lacking in good schooling facilities. Not staying together as a family poses a different type of money management challenge. On the other hand, a posting to a family station comes with its own challenges. At a new location, one usually settles in the mess or a week or ten days before being allotted a temporary house or taking a house on rent. The wait for the permanent house (as per entitlement) can take even a year. All of these factors result in multiple leaks from one’s corpus.

A close friend, also an army person’s wife, shared her thoughts with me: “Postings result in a lot of money outgo … while all moves are reimbursed (defence personnel gets a composite transfer grant), the amount of damage to your belongings (loss in many cases) over the years does have an impact. With each move, the school hunt starts and the subsequent admission is a huge money drainer. At the present location, we have changed the house twice. It’s a good life, but has its unique struggles.”

The importance of liquidity

Thus, one crucial component is to have liquid cash up your sleeve. While CDA (Controller of Defence Accounts) is pretty punctual with its salary crediting mechanism on the last day of each month, it’s still important to keep aside a minimum of six months’ expenses (including any EMI and investment amount). Park this sum as a sweep in a fixed deposit, or a liquid mutual fund and keep adding a small amount to this fund each month. This can come handy for heads such as bigger household purchases, travel expenses, and admission expenses. This ensures that one’s long-term investments are not touched along the way.

While writing this article, I asked one of my classmates, now commanding a unit in the North East, to list a few challenges related to money management. Like a true fauji, he said “roger” and sent me a list of points, which I’m quoting here:

-Lack of awareness due to being out of the mainstream;

-No access to relevant info in real-time due to being out of network/TV zone;

-Easy targets for unscrupulous agents and finance managers due to constant moves.

I felt bad on reading his third point. Sadly, it is a reality. My next point highlights his third.

Unsuitable products

Don't buy insurance-plus-investment products. The AGIF (Army Group Insurance Fund) subscription under the head of debit of the payslip is what army personnel are contributing towards insurance. Depending upon the rank, insurance covers are for around ₹50–75 lakhs. Since there is a provision of family pension, the need for insurance cover is comparatively limited.

The insurance cover provided by AGIF can be complemented with a pure term plan depending upon the liabilities (such as a home loan) and one’s situation—whether the spouse is working or not, kids are settled or still in school, and financial independence of parents, among other factors.

Defence personnel may want to buy an additional life insurance cover if they are the sole breadwinners of large dependant families that may also have many liabilities or even a home loan.

Whatever be the case, don’t buy insurance and investment bundled together—these products do not serve any purpose. The insurance you get from such products is mostly 10 times the premium amount, so even a ₹50,000 yearly premium will only give a ₹500,000 cover. Thus, if you feel that additional insurance is needed, then it must be a term plan.

To be continued in part II.

(The writer is founder, FinFix®)