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After the TSP, I invest my money in Betterment and Vanguard. I track all of my investments with Personal Capital. I also wrote a short, 2 hour book summarizing this site. You can buy it here.

This is written primarily for the young enlisted fresh out of boot camp or the newly minted officer from the Academies, ROTC, or OTS/OCS. However, much of the advice can be applied to anybody, civilian or military, who is just starting their first job in the “real world.” Even if you’re only a few years away from your military retirement, you can apply much of the steps here to achieving your financial goals. Once you’re done reading this short article, read the 10 Step Guide to Financial Freedom. It will expand on many of the points raised here.

"Where to begin..." via U.S. Air Force Flickr
“Where to begin…” via U.S. Air Force Flickr

If you just commissioned or enlisted into the U.S. military, here are 7 things you should do in the first 6 months of your new job. If you do these things you’ll be ahead of 90% of your peers and you’ll thank yourself immensely down the road when you’ve set yourself up for financial success.

  1. Find a military friendly, online, fee-free bank
  2. No credit cards until you understand your spending
  3. Track your expenses online so you know where your money is going
  4. Save a $1000 emergency fund ASAP
  5. Start educating yourself
  6. Save a 1-3 month emergency fund
  7. DO NOT buy a new car or truck

Step 1: Find a military friendly, online, fee-free bank

There are several financial institutions out there that have been built specifically to serve military personnel. These banks are unique in that their primary customer are active, guard, reserve, separated, or retired military. There are several advantages to banking with a military friendly bank rather than one of the big national chains. All of the banks I recommend

  • Employ veterans who understand the unique challenges military members face
  • Minimize “bullshit fees” and keep your money in your pocket
  • Offer specially discounted rates on loans and insurance
  • Have outstanding customer service

Besides understanding the uniqueness of your military service, all of these banks I recommend have no “BS fees.” A BS fee is any fee that you incur just for doing routine banking transactions. Some examples of BS fees are:

  • Paying to withdraw cash from any ATM
  • “Account maintenance” fees
  • Minimum account balances

You should never, ever, pay a bank fee. Banks make plenty of money through loans. You don’t need to help them out by paying a fee for anything.

Here are the best military banks:best military banks

USAA – my personal favorite and who I’ve banked with since 2008. Offers outstanding customer service, innovative banking apps like mobile check deposit, and always pays you at least one day ahead of your regularly scheduled paycheck date. Besides bank accounts, they also offer the best auto insurance for military personnel.

Navy Federal Credit Union – 4 million members can’t be wrong. Serving all 5 branches of the military and the DoD, Navy Federal is one of the premier military friendly banks.

PenFed – offering some of the best military credit cards, PenFed’s cards have no foreign transaction fees, which is something you’ll want to watch out for with all the international travel you’ll probably be doing.

Chase Military Banking – I’m a big fan of Chase credit cards but have never really liked their banking products. There are way too many BS fees with most Chase banking products. However, they do offer some very competitive discounts to military personnel.

Your lifestyle is mobile. There will be deployments, there will be TDYs. You want a bank that you can access from anywhere in the world, anytime, on your smartphone, tablet, laptop, or over the phone. All of the banks recommended here offer online statements and online access to all your accounts. As long as you have an internet connection, you’ll never be more than a few clicks away from your money.

One of the major concerns people have with online banking is how do I deal with cash? Because your military paycheck is direct deposited, I think you’ll discover that you rarely have cash on hand. If you do need to deposit cash, you could open an account with a local credit union or bank and electronically connect the account to your online bank account.

Step 2: No credit cards (only debit cards) until you have a handle on your spending

Until you understand what you’re spending money on every paycheck and you are building your firm financial foundation, don’t start using a credit card. I’m a big fan of responsible credit card use and you’ll be allowed to sign up for them at the intermediate level.

However, without understanding where you spend your money or understanding how credit cards work, you can get yourself in heaps of trouble by running up credit card debt! Don’t be one of the millions of Americans that has to start their journey to financial independence in massive amounts of crushing debt. When you do have a handle on your spending and you’re ready to start building credit and cashing in on cash back credit cards, check out a list of good military friendly cards here.

Step 3: Track your expenses online so you can budget proactively

personal-capital-all-platformsSome people find budgeting annoying. Personally, I only like to look at my budget twice a month, when I get paid. There are a dozen different budgeting systems out there, like tracking every purchase you make, setting yourself a spending limit, budgeting monthly, the envelope system, etc. Use whatever works for you.

Before you can even begin to think about a budget though, you have to begin to understand where your money goes every paycheck. The easiest way I’ve found to do this is online, either through your bank or an account aggregator like Mint.com or Personal Capital. These sites allow you to combine all of your accounts on one page and keep track easily of your spending.

Step 4: Save a $1000 emergency fund ASAP

Life is unpredictable. Military life especially so. While you’re building your financial foundation, you don’t want to have to incur debt if you experience some sort of financial emergency. Having $1000 set aside, which you can quickly build while you’re in training or at your first duty station, will give you flexibility when unanticipated expenses pop up.

Step 5: Start educating yourself

Get some personal finance and investing books from the library. Start reading a few good blogs. If you don’t understand some financial terms, Google it. Never, ever sign for any financial product you don’t understand. If it sounds too good to be true, it is. There are no such things as low risk, high return investments. A couple of books I’ve learned a lot from are the Millionaire Next Door, Your Money or Your Life, and I Will Teach You To Be Rich.

Step 6: Start saving a 3 month emergency fund

You’re next goal is to continue to build your emergency fund until you can cover 3 months of your expenses. How much you need in your emergency fund is a great discussion to have with your spouse or a topic to research online. For now, just set aside 3 months of expenses. Note that I said expenses, not income. You should probably have enough to buy an emergency plane ticket back to your family, cover any car repairs, and have another $1000 set aside.

Step 7: DO NOT buy a new car or truck

If you have been in the military for less than 2 years you shouldn't be driving this!
If you have been in the military for less than 2 years you shouldn’t be driving this!

I don’t know if it’s just a disease that affects E-2s and O-1s, but buying a new automobile when you’re within 6 months of boot camp or commissioning is one of the worst things you can do for your finances. Besides a home, a vehicle is often the most expensive purchase you will ever make. Don’t make it without a lot of thought.

When you graduate boot camp, you are way down on the totem pole. You are probably earning less than $20,000/year. This is not the time to immediately sign up for a five year auto loan on a $20,000 Ford F-150.

The problem is not the new car or truck itself. I’m not going to sit here and tell you you don’t deserve, you haven’t earned it, or anything like that. I don’t care if you buy a new car or truck.

I just want you to stop and think about the lifetime of debt you are signing yourself up for. I just want you to think about the potential missed opportunities you’ll have because you have to make a $300/month car payment, rather than investing $300/month into your Roth IRA. Consider your alternatives before you become another slave to your debt and spend a lifetime digging your way out.

There will be a time where you will be able to make a smart decision about buying a car for more than $5000. Now is not that time. You have a lot to learn.

These are the basic steps you need to take to lay the foundation for a successful financial life.

These steps will work for anyone trying to achieve financial goals, whether your goal is to buy a new TV or become financially independent before you turn 40. If you don’t have any goals yet, implement these steps, and your future self will be grateful for the system you put in place.

These are your foundational steps. When you’ve got these down, it’s time to move on to the intermediate level. After you’ve mastered that level, you’re ready to move on to the advanced level of financial independence.

2 Websites I Use to Achieve Financial Independence

The best way I know to achieve financial independence is to keep your investments simple, diversified, automatic, and low-cost. Costs eat into your returns like you wouldn't believe! A 1% difference in expense ratios can mean $100,000s lost to fees over a lifetime of investing.

Even if you're a DIY (do-it-yourself) investor like I am, you need to check out Betterment. You can read my full review here, but the bottom line is for only $250 per $100,000 invested (0.25% expense ratio) you get simple, diversified, and automated investing. In addition every account now gets free Tax Loss Harvesting+ features, which should increase returns for the average investor more than the minuscule management fee.

If you're not a DIY investor or are just getting started with investing, then you definitely need to check out Betterment. It's what I recommend to my family and friends who aren't strong investors or don't care to learn about asset allocations, diversification, or rebalancing.

I have investment accounts all over the place. To keep track of all of them in one place I use Personal Capital. It combines all of my accounts, shows me where I may be overpaying in fees, and provides beautiful charts showing my overall asset allocation and performance.

I use Personal Capital to track my Roth and Traditional TSP, Vanguard IRAs, banking accounts, SDP, and my Betterment taxable account, all in one place. It's free, secure and presents me with a one-stop dashboard so I can see all my money on one site.

Read my full review of Personal Capital and see how easy it can be to manage your investments in one place. Trust me, once you try it, you'll love it.

P.S. - If you have over $100,000 of assets and a 401k, you really need to run the Personal Capital 401k Fee Analyzer.

Just Joined the Military? Here’s What to Do With Your Money

2 thoughts on “Just Joined the Military? Here’s What to Do With Your Money

  • September 24, 2013 at 08:36
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    I do not use Facebook otherwise I would send you a “Like”. The Web site is very professional! I am not surprised, however, knowing your Grandfather.
    This site has much useful information which is very much needed by everyone today, especially the younger people.
    There are two suggestions you might consider. The first is that achieving financial security is not “rocket science” so everyone can easily grasp the steps and concepts. It is a matter of discipline, which should be well understood by military personnel, and of disabusing oneself of being entitled.
    The second is make sure the younger audience understands the power of compounding, which also helps to instill the discipline.
    You are doing a wonderful job in providing a very valuable service which I intend to follow on your site and recommend it to others.
    Best wishes for continued success.

    Reply
  • October 20, 2015 at 19:04
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    Thanks for addressing the new car pandemic that appears to exist in the military. We are Army and my guess would be that it is even more pronounced where we are, but I could be wrong. I often call base pay the government’s subsidy for car dealerships and restaurants, because that’s all anyone seems to do with their money.

    Reply

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