Army CGO: No Debt, No Kids, No Savings

I usually get an email every week or so from a reader. You can contact me here if you have an military finance question. Here is a conversation I had over the past 3 years with an Army captain regarding his financial game plan.

His emails are in quote boxes and mine are not, both sides are lightly edited for clarity.

First Email (2016)

Sir,

Just wanted to get your insight. I've been reading your posts from the shadows for a while now.

I am a junior officer with no expenses for the next few months. I am looking at contributing more into my Roth TSP. I currently am at a measly 3% (not because of lack of funds, but because of lack of knowledge).

What do you recommend here? I have a substantial amount of savings, and an established emergency fund.

What should I be looking to contribute into my Roth and Traditional TSP?

Should I consider opening a Vanguard as well?

Thanks for the email, Army CGO.

• What are your goals?
• What do you want your money to do for you?
• House?
• Marriage?
• Kids?
• How much do you have in your emergency fund?

Personally, I think financial independence is the only financial goal worth pursuing. I even wrote a book about it.

Everything else is secondary to that. If you want to be financially independent in a reasonably quick time (less than 20 years), you need to be saving 50% of your income.

Check out this great financial independence calculator here.

If you have no expenses for the next few months, you are probably deployed. I set a $50,000 deployment savings challenge on my last six month deployment.

If you're receiving CZTE (tax free combat pay), get it into your Roth TSP ASAP and as much as possible. Also max out your Roth IRA. I recommend Vanguard.]

You can also convert your Traditional IRA to Roth IRA while deployed and pay little to no taxes on the conversion, depending on your taxable income for the year.

Second Email (2017)

I appreciate the help. Anyway, you are spot on with your assessments.

Here is my situation in broad strokes:

-No kids/wife

-zero debt (student or otherwise)

-substantial savings

-currently no rent/car payment

-USAA Roth IRA

-I am considering opening a Vanguard VTSAX. The minimum is $10k –

Goal: dont't really have any. I already have a degree. No debt. Doubt I will buy a house anytime soon. I would like to retire comfortably, and quite frankly, when I hit 20, I want to be done.

Questions:

1) What would be the best investment vehicle for me?

2) Hypothetically, let's say I have 100k in savings, what would you recommend for allocation of funds? I say 100k because that will make percentages easier.

3) Rainy day fund. I don't have anything really, so I can make this a little smaller, right?

4) I am going to buy a new car when I'm back. When I say new, I mean new to me. I'm not the typical Ford Raptor kind of military guy. I am comfortable in a 97 honda civic. I am outdoorsy, like to camp, and appreciate good gas mileage. I don't need anything flashy.

Do you have recommendations? Not necessarily on a model, but am I off track here to say I am going to look for an older used vehicle in decent shape?

Thank you. I appreciate the help from someone who isn't a financial adviser and genuinely understands my situation.

Take care.

Sounds like you are a good candidate for early financial independence. I would make that your goal and work towards it.

You will be surprised how quickly you can save and grow your net worth on your journey to financial independence. GoCurryCracker did it in 10 years. Mr. Money Mustache lays out the shockingly simple math behind early retirement.

Vanguard is a great place to hold your investments. I have over $100k there and plan on using them for life. Low cost, diversified, and a good corporate structure (owned by the funds so costs stay low).

You can start with the Vanguard ETF VTI (Total Stock Market) for very little, then move up to the Admiral class shares ($3000 min).

Best investment vehicle for you is the same as everyone else: a Roth IRA and Roth TSP (you can max both) while your taxable income is low (O-1 to O-2 or deployed) and a Traditional IRA/TSP when you make O-3 and are not deployed.

I recommend dumping your USAA IRA and moving to Vanguard ASAP to take advantage of the low fees.

For fund allocation ideas, check out Boglehead's Lazy Portfolios or my asset allocation. Most important thing is to get your TSP allocation set and get the majority of your money out of the G Fund (it's too risk averse without enough upside potential).

Rainy day (emergency) fund can be whatever your comfortable with. I usually keep enough for plane tickets home for the wife and me + $1000 for car repairs + 2 months expenses.

Usually $5000-$10000 cash just sitting in a savings account. $10k is nice sitting there in case you get deployed because you can max out the SDP ASAP.

New to you car is a great idea. I used to buy used cars but got sick of the maintenance on them. As an O-1, O-2 I only drove used cars. Once I made O-3 I splurged on a new car.

I bought a 2015 Mazda 3 hatchback back in 2014 and love it. Paid it off in a year on a .75% auto loan. 40MPG on the highway. Whatever your comfortable with used or new, lots of people advocate old reliable cars like Hondas, Mazdas, Toyotas. A Consumer Reports subscription might be worth it too for some research.

Third Email (2019)

Hey man,
I talked to you a few years ago and you gave some OUTSTANDING advice. Wanted to pick your brain again to see what is best to do with my money… because frankly, it's doing nothing right now.

STATS:

-Army O3, single, no kids

-just bought a new-to-me 4Runner for $28k (traded in my 13 year old Tacoma. I'm moving to XX so I need something for the Mountains). Absolutely atrocious on gas, but great for my hobbies and excellent resale.

-about $50k in VTSAX ONLY (big question here)

-20% towards Roth IRA; 0% to TSP

-$20k in USAA IRA

-A lot of cash in savings. Talking 6 figures amount

-always try to keep rent under BAH so I can cover expenses including rent, utilities, cell, etc…

-My current car budget (actual payment+fuel+insurance) is ~$800. Interest rate is at 4%. Otherwise, I am entirely debt free (no student etc…). Also, I have the cash to pay for the 4Runner outright.

What is your advice? Specifically:

-What should I do with my cash? Put more in VTSAX? Should I wait for the price to drop again? VTIAX? Bonds in accordance with bogglehead theory?

-Managing my monthly budget 50% need/30% want/20% savings theory. Should I change those numbers?

-Should I transfer my USAA IRA to Vanguard?

-Should I pay off the 4Runner outright? I could sell in a few years, and my interest rate isn't awful.

-If I don't pay outright, should I put $28k cash in a CD or something similar for the life of the auto loan to offset the interest?

I hope this isn't too many questions. You have no idea how much help you were to me a few years ago. I only hope that I can pass the wisdom off to my Soldiers.

Happy you took my advice and thanks for checking in again 2 years later.

• So the VTSAX is in a taxable account?
• Why is your IRA still with USAA?
• What is the expense ratio on whatever shitty fund they have you in?

The 4% auto loan is too high, in my opinion. Why not buy your car outright with your cash, save on the interest, and unlock more cash every paycheck?

Having no debt is extremely powerful position to be in and changes your mindset immensely. Going debt free is worth it just for the freedom and increased confidence it unlocks.

Why no TSP contribution? Are you opted into the Blended Retirement System (BRS) or still the old military retirement system?

To answer your questions:

What should I do with my cash?

Six figures in cash? That's not doing anything for you. That's lazy money. Get that money working for you.

Max out your Roth IRA for the year. Set aside $10-20k for an emergency fund.

Ever want to get married? Set aside another $5-10k for that. Pay off that car and become debt free. Then every dollar you receive in the future is yours, not your lenders.

Put more in VTSAX?

Yes.

Get the rest of your cash into VTSAX ASAP. Don't wait “for the price to drop again.” You don't know when that will be. It might be never.

The market may never return to it's current level and go up another 15-20% this year. That's gains you will miss out on forever if you sit on the sidelines.

Even if it goes down 20% the day after you invest, you are in this for the long run, so it doesn't effect you. If you wait a year, that's a year of dividends you miss out on.

Bonds?

You don't really need bonds yet at your age. If you do want to add bonds, have a reason to. I'm 95% stocks, 5% bonds and thinking of slowly moving towards 100% stocks. 90% stocks, 10% bonds is fine at your age as well. My asset allocation last year.

Monthly budget?

Why are you only saving 20%? When do you want to be financially free so you can make choices from a power position, not a weakness position. Run your numbers here about what happens if you boost your savings rate.

See how many years you can shave off your FI goal by increasing your savings rate. I've been at a 50% savings rate for the past 4 years and looking to boost that even higher as I approach O-4.

My wife and I just save 50% off the top and spend the rest without really budgeting. We set ourselves up by keeping our fixed expenses low relative to our income and then we're just flexible and we don't count every penny because it's a huge time suck and not much value add when we're already saving 50%.

Transfer my USAA IRA to Vanguard?

Yes, call go to vanguard.com and follow these steps: https://investor.vanguard.com/account-transfer/transfer-ira

It's free, tax free, and easy.

Pay off car?

Yes.

$28k cash in a CD?

Not a bad idea, but there aren't any 4% CDs yet. Maybe in 2020, but I'd rather just be debt free.

If you have a question you think I could help with, please contact me here.