How Much Emergency Fund for an E-3?

Thanks for messaging me! I think $10,000 in an emergency fund might be a bit much for you, as your monthly expenses seem to be under $1000. You'd probably be good with $5000, especially if you're not planning on getting out soon.

Remember that emergency funds are there to cover rainy days, like if you need to purchase plane tickets to attend grandma's funeral or replace the timing belt in your car. Having an emergency fund keeps you from falling into debt traps and lets you continue investing even when life's little issues crop up.

You need to ditch that car loan ASAP! 8% is compounding interest working against you, not for you. I would allocate all additional income you can to paying it off, even to the point of pausing your TSP contributions. Also call USAA, Navy Federal, or Penfed and see if they can offer an auto loan refinancing under that 8%. That could save you a few hundred.

The Not-So-Secret World of Stock Investing

I'm going to let you in on a secret. You don't want to “get into the world of stock investing.” It's almost pure gambling and the only winner is your broker (in this case USAA), because they're going to charge you $6+ per trade. If you're only investing a few hundred dollars a month, you're losing. What you want to do is get into the world of making money, not handing money over to financial services companies.

Here's what you need to do instead of making USAA richer: focus on maxing out the TSP, specifically the Roth TSP. The reason for Roth is your tax rate is extremely low right now, probably less than 10%. If you deploy, your tax rate will drop to zero. That means the money will go into the Roth TSP low (or no) taxed, grow untaxed, and distribute to you after age 59.5 tax free as well. That's the best tax break available to you right now. Pay your low taxes now and then never pay tax on that money again.

The reason to invest in the TSP over the USAA IRA is all about costs. Check out how much high expense ratios can cost you. I've seen USAA funds with expense ratios over 1.5%. Not cool! If you have money in accounts outside the TSP, run them through Personal Capital's Fee Analyzer. It shows you how much of your return you could lose to fees over the course of your life. The TSP expenses ratios are .025%, which are the lowest in the world.

In the TSP, you get access to simple, diversified index funds that beat 80% of the actively managed funds over 20+ year periods. The C and S Funds combined cover nearly every publicly traded US company and the I Fund gives you international exposure. The G and F Funds give you access to the US government bond market and the commercial bond markets. And, you can automatically invest in the TSP from your MyPay account so you don't even need to think about it.

The TSP is definitely the best investment choice for military personnel because there's almost no cost to buying thousands of stocks and bonds through the different funds. Skip the overpriced USAA funds, go with TSP. Once you max out your TSP ($18,000 in 2015), then you can open a Roth IRA at Vanguard. They have the second lowest expense ratios after the TSP.

Your asset allocation ratio (C, S ,and I Funds) looks really good for your age (I'm assuming your younger than 30 since you're an E-3, correct me if wrong.) Good job switching out of the G fund, it's something not a lot of people know to do. Remember to look at the long term. Pick an asset allocation your happy with and only adjust it every year or two. By making frequent trades or chasing performance you may miss out on growth opportunities.