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.
Congratulations on your enlistment or commissioning! Or, if you’ve been in for a while, thank you for your service! As a young officer myself, I know the pride and satisfaction I get from doing the mission and serving my country every day. It’s a very unique career field you’re in, so enjoy it and live it up while you can!
As part of your service to your country, Uncle Sam sees fit to send you some of the taxpayers’ hard earned money twice a month in the form of a direct deposit paycheck. This paycheck, from the Defense Finance and Accounting Services (DFAS), arrives on the 1st and 15th of every month. If the 1st or 15th falls on a weekend or public holiday, you’ll be paid the first business day prior. If you bank with a military friendly bank, chances are you’ll be paid the day prior to the scheduled payday.
Components of Military Pay
Military pay and benefits is made up of two major components and then many smaller entitlements. The biggest one is usually your basic pay, sometimes to referred to as base pay. According to militarypay.defense.gov,
Basic pay is the fundamental component of military pay. All members receive it and typically it is the largest component of a member’s pay. A member’s grade (usually the same as rank) and years of service determines the amount of basic pay received.
Basic pay is also usually the largest taxable component of your pay. That means that even though you’re being paid with taxpayer money, you still have to pay taxes. Bummer.
The second largest component of your military pay is usually your Basic Allowance for Housing, or BAH. Whether you receive BAH or not depends on whether you live on base, off base, or in on base privatized housing. If you live off base or in on base privatized housing, you will usually receive BAH. If you live in government quarters, such a dorms, you will not receive BAH. BAH can often be up to 40% of a servicemember’s take home pay. An additional benefit of BAH is that it’s not taxed.
There are many other allowances that members may receive. An extremely common allowance is Basic Allowance for Subsistence, or BAS. This is meant to offset the cost of food for the servicemember and his/her family. militarypay.defense.gov says that:
Because BAS is intended to provide meals for the service member, its level is linked to the price of food. Therefore, each year it is adjusted based upon the increase of the price of food as measured by the USDA food cost index. This is why the increase to BAS will not necessarily be the same percentage as that applied to the increase in the pay table, as annual pay raises are linked to the increase of private sector wages.
Finally, there are Special and Incentive Pays. These are designed to improve recruiting and retention as well as compensate servicemembers for hazardous or difficult tasks and assignments. Some of these include Flight Pay (for pilots and aircrew), Hostile Fire Pay/Imminent Danger Pay (for those serving in a combat zone), and many others. You can find a complete list here: http://militarypay.defense.gov/pay/SI/
Your military pay is recorded on a paystub known as a Leave and Earnings Statement, or LES. An LES is issued every month and shows you how much money you’re being paid and how much is coming out for taxes and other deductions. You can access your most recent 12 LESs on myPay.
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.