Most law enforcement officers pride themselves on being in control. And there’s no doubt that the ability to correctly assess a situation and act or react in a way that keeps it under control is a big part of the job.
But for too many officers, their financial life is an area that is not in control. Maybe not completely out of control—but headed in that direction. Now, you might think it’s none of anybody else’s business. It’s your money, right? But the fact is that when your personal finances are not in good shape, your mind can drift; you can be distracted. And when you’re on patrol, that’s no time for your attention to be wandering.
Let’s take a look at some of the most common unforced financial errors that many law enforcement officers make, along with some tips on how to get better. It won’t surprise you to know that these are the same challenges faced by most Americans, but improving on these areas will put you ahead of the game, both professionally and emotionally.
1. No budget
This is the point where many people tend to roll their eyes. But the reason is because they misunderstand the purpose of a budget. You should not look at a budget as a “no-no list” for your money, or as someone telling you what you can and can’t spend on various things. Instead, a budget is an instrument of control. It is your plan—devised by you, based on your unique needs and priorities—for where your money will go. How many times have you heard someone say (or thought yourself), “I don’t know where the money goes”? Well, a budget helps you find out. And guess what? If you need to adjust your budget—move some things around, increase or decrease in some areas—that’s perfectly acceptable. AARP has a great free online tool you can use to start setting up a budget—and you don’t even have to be retired to use it. You just need a sincere desire to tell your money where you want it to go, instead of the other way around.
2. No savings
If there is one thing that every financial advisor and wealth manager in the world wishes for, it’s a pill that would make everybody get in the savings habit. There is simply no more foundational behavior for building long-term financial security than the discipline of putting aside money for savings and investment. Of course, this is easier for some than others. Some people get an actual endorphin hit when they deposit money in their account. But a whole lot more get that rush from buying the next cool “toy” or taking an amazing vacation. There’s nothing wrong with toys or vacations, but if they come at the expense of your long-term financial health, they start to look more like addictions—and those aren’t healthy for anybody. The key to saving, especially at first, is to start small, but regular. Put aside some amount of money from every paycheck, and keep at it. When you can, move some of the savings into investments that can earn better returns over the long haul. But if you never start, you’ll never finish. (And by the way, want to know one of the best steps toward regular saving? Putting it in your budget—see #1).
3. No retirement plan
This is a big one. According to a recent survey by TD Ameritrade, only about 40% of Americans have any idea how much money they’ll need in retirement. The quick answer, by the way, is somewhere between 70% and 90% of your pre-retirement income. Take a look at the balance in your savings account, and estimate how long that will allow you to draw 70% of your current paycheck. Don’t like the result? Then it’s time to make a plan. As a law enforcement officer, you have the tremendous benefit of a pension that will be waiting for you when you reach the necessary years of service. But do you know what your benefit will be? If the number doesn’t match your plans for how you want to spend your retirement years, then you’re going to need to start putting aside some extra money sooner, so it has a chance to compound and grow. Investment firm Charles Schwab has a free online retirement calculator you can use to see how much you’ll need to have saved in order to get the retirement income you desire.
At Mathis Wealth Management, we have a thorough understanding of the professional and financial challenges faced by law enforcement officers and other first responders. To find out how we can put our expertise and research to work for you, please contact us.