By Matthew Loux, Faculty Member, Criminal Justice at American Military University
The financial health of law enforcement officers is extremely important to help reduce stress, alleviate ethical issues, maintain security clearances, and stop living paycheck to paycheck.
According to the Bureau of Labor Statistics, the national salary estimate of police and sheriff’s patrol officers is $58,720. That $58,720 is reduced by taxes, Social Security, Medicare, health and life insurance, retirement, and other allotments.
A 2013 survey by Bankrate.com, showed that 76 percent of people surveyed live paycheck-to-paycheck, only 35 percent of those making less than $75,000 have at least three months’ of emergency savings, and 27 percent of those surveyed had no savings.
There are ways for law enforcement officers to still prosper despite these statistics and includes:
By taking some of these basic steps, financial freedom can be yours.
Everyone needs a budget to financially survive. I recommend a zero-based budget, which is a method of planning for each month or pay period. This method lists the income at the top of a sheet of paper and then adjusts the income by listing expenses that need to be allocated for until all the income has been depleted. I use a simple budgeting form in Excel, but you can use a notepad.
After the basic expenses such as mortgage/rent, utilities, food, and clothing have been paid, you should allocate the remaining income to other categories such as savings, retirement, college tuition, entertainment, etc. The zero-based budget forces you to allocate expenses based on needs, identifies possible expenses that are not necessities or can be eliminated, and forces you to continually evaluate your budget to reflect your life and determine what is really important.
If you are married, it is imperative that you and your spouse talk and agree on the budget so you do not become a statistic for divorce. The point is: You need a budget to tell your money where to go rather than your money dictating what you do with it.
Emergency funds are critical to law enforcement because it gives a sense of security when the unexpected happens. Starting out with $500 to $1,000 in an emergency fund should be your first goal. Many law enforcement personnel work overtime and off-duty jobs to supplement their income. If you created a budget as described in the first section and your income meets or exceeds your expenses, then one of your categories should be savings to get you to the $500 to $1,000 emergency fund. Once that is set up, you can start to pay off your debt which is discussed in the next section. If you have no debt besides your mortgage, start putting any extra money into the emergency fund. You should have 3 to 6 months’ worth of living expenses in your emergency fund. Emergencies are just that, an emergency, it is not to be used when you need a new video-game system or a couch. I do not give investing advice so you should contact a reputable financial planner for those needs.
Once you have identified your debts from your budget worksheet, list your debt balances lowest to highest. Some suggest listing your debts with the higher interest first, but I prefer listing the lowest balances first so I can concentrate on paying those off first to give me a mental boost.
Once you have that initial emergency fund set up, use any extra money you earn from overtime, off-duty jobs, and selling items around the house to start paying down your smallest debt first. When it is paid off, apply that payment to the next debt, and repeat. It is called the debt-snowball and you will start to realize a weight lifted off your shoulders when you finally are debt free. I recommend using cash whenever possible because I have found that I spend less when I use cash and cut up those credit cards.
When I got my first job in law enforcement, I treated myself to a new car because I thought I deserved it after spending so many hours studying in college. Now looking back I realize that if I would have taken that monthly car payment and invested it, this is how things would have turned out:
That is the power of compound interest. The lesson learned is to invest early and let the money work for you. Make sure you do your research on the defined benefit plan offered by your department to know the amount of your retirement pension. You should also take advantage of your department’s retirement matching program if it is offered. Aspire to invest 15 percent of your income after you are debt free and have your emergency fund established. Let’s look at a couple of examples: