The Financial Flank
At Operation Financial Forward, we use the "Financial Flank" to pay our debt off quickly and efficiently. This method for reducing debt is a six-step process. This method includes assigning a score to each debt based on the outstanding balance, interest rate, and monthly payment amount. Debts are then prioritized and repaid from lowest score to highest. As one debt is paid off, the payment of that debt is applied to the next debt until all debts are paid.
Step 1
The first step is understanding your income. Military pay can be complicated. You need to verify that your base pay is accurate, confirm that your entitlements are accounted for, and understand your Basic Housing Allowance (BAH). OFF offers a module for selecting appropriate housing and understanding BAH. Utilize MyPay to access your Leave/Earning Statement. If something is wrong with your pay, let your leadership know!
Step 2
Ensure the accuracy of your budget before starting the debt repayment process. Create a comprehensive budget that accounts for all income and expenses, ensuring that your outflows do not exceed your inflows. Utilize the "OFF Budgeting Tool" or contact a coach at OFF for assistance in creating a budget that covers all expenses.
Step 3
Categorize your expenses as necessary or unnecessary. For necessary expenses, strive for the best value and rates. Identify and eliminate unnecessary expenses to increase your cash flow. Short-term sacrifices in step three will lead to long-term success in your journey. An expanded module on this step is found here.
The average energy drink costs $4.70 at a gas station. This comes out to $145.70/month. Energy drinks typically cost less than $2/can if purchased from a grocery store. Purchasing from a grocery store can save you $83.70/month.
The average cup of coffee cost $4.90 at a US coffee shop. This equates to $1,274 over a year's worth of working days. OFF estimates that a home-brewed cup of coffee costs roughly .30/serving.
A 2021 study shows that close to 1/3 of consumers underestimate how much they spend on subscriptions by an average of $150/month or $1800/year.
Step 4
Calculate scores for our individual debts.
List each debt including outstanding balance, interest rate, and monthly payment amount.
We assign a weight of 50% to the balance; 30% to the interest rate; and 20% to the monthly payment.
Calculate Debt Score using OFF's Debt Score Calculator. List each score next to each debt.
Once all scores are calculated; we rank them from lowest to highest.
Step 5
Implement the "Financial Flank" by making minimum payments on all debts except the one with the lowest debt score. Allocate any remaining cash towards that debt to accelerate its repayment. Repeat this process monthly until the debt is fully paid off.
Step 6
During Step Six, we start to really gain momentum. In this step, we attack our debt, one by one. This process continues until our debt is paid off. Chances are during this process you will PCS, reenlist, or receive a tax refund. All three of those events typically include lump sums of cash that will help you pay off debt quicker.