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If you just graduated from Air Force Basic Military Training (BMT), Army Basic Combat Training, Marine Corps Recruit Training, Navy Recruit Training, ROTC, OTS, The Military Academy, The Naval Academy, or the Air Force Academy, you need to read my 7 Things Every New Military Member Needs to Do With Their Money. It'll take you 5 minutes to read it but will probably make you over $1,000,000 over the course of your life if you just start with these 7 simple steps. After you read that page, come back to this one.
The most important thing you need to do in order to achieve financial independence is earn more than you spend. If you just start with that everything else will be so easy. Here are the ten actionable steps you need to follow if you want to achieve financial independence while serving in the military.
1) Figure out how much money you make and where it goes. Get onto myPay and read your Leave and Earnings Statement (LES). Start recording every penny that leaves your checking account or wallet. This doesn’t have to be hard, there are free, safe online programs (like Personal Capital or Mint) that will do all the work for you!
2) Spend smarter. You don't need to cut coupons or live extremely frugally. Just cut out the fat. Do you really need 500 channels AND HBO AND Netflix AND Redbox AND Blockbuster AND to go out to the movies every week? Did you know you can get your cable bill cut in half with a single phone call? Downsize your vehicle or go to one vehicle if your family can realistically do it. There are so many easy things you can do to decrease your cost of living. All of it adds up quickly.
3) Save an Emergency Fund. An Emergency Fund. Not an “we want to go on vaction. Oh look! We have $2000 in this bank account!” Fund. This is your fund that you turn to on a rainy day. And there will be rainy days. You get a short notice TDY/PCS and have to pay for everything out of pocket. And then the reimbursement gets delayed because finance messed it up. For everything in life that’s not predictable, you can turn to your Emergency Fund. From the car breaking down to a flooded basement, stuff will happen and you need to be ready for it. Credit cards and payday loans are NOT the answer if you want to achieve financial independence. Start by setting aside $1000 ASAP and then build it to cover 1-3 months of expenses. You never know when Congress is going to decide to not pay the military again.
4) Practice “conscious spending.” Every dollar you spend on something is a dollar that is not being spent on something else. Figure out what you like, what drives you, what makes you happy, and spend your money on THAT. If you want a $4 a day latte, buy it. If you want to take your family out to a nice dinner once a month, save your $4 a day and you could take your family out to $120 meal. If you go to the gym every other day, don't worry that it costs you $50/month. But if you never go, what's wrong with using the gym on base the once a week you do go? Don’t let recurring charges on your debit or credit card limit what YOU want to do with your time and money! If you’re not using a service (gym, cable, magazine subscriptions) cancel it!
5) Make sure your insurance is current, covering what you need, and not covering what you don’t. Life insurance through the military (SGLI) is a great deal. Likewise with health insurance. However, if you’re driving a car more than 6 years old, you’re probably paying too much for auto insurance. Get quotes from competitors and see if it’s worth cancelling comprehensive coverage. If you live in an apartment or the dorms, renters insurance is cheap and offers you excellent coverage. You can’t risk not having it. With a good auto, life, and home/renters insurance, you'll cover yourself from life's misfortunes.
6) Get rid of your debt. Stop working for your creditors and start putting your money to work for you. Debt is slavery. So long as you are required to make monthly payments on your credit cards, auto, house, cadet, or student loans, you are not working for yourself, you’re working for your lenders.
7) Save for goals. Saving for no reason isn't any fun. Have goals! Target your savings. Save for a trip to Hawaii. Save for a new car. Save for Christmas presents. Automate everything so that you saving becomes the first thing you do, not the last.
8) Educate yourself and earn more. The most powerful way to increase your income is through education. Formal or informal, it’s important to never stop learning. College graduates make almost 2.5x the income as high school dropouts and enjoy a unemployment rate that’s 3x less than the dropouts. The military offers many ways to educate yourself and many education benefits. Besides formal schooling, spend some time reading some classic personal finance books or blogs.
9) Invest and max out your retirement accounts at a minimum. If financial independence is your goal like me, you need to contribute the maximum amount you can every year to your Roth TSP, your Roth IRA, your spouse's Roth IRA, and your regular investment accounts. If you can save 50% of your income you can achieve financial independence in only 17 years. Once you have between 25-33 x your annual expenses invested, you are financially independent.
Throw in a military retirement pension or income from other sources and you can be financial independent before you're 40. Investing is not hard. Automatically contribute to your tax advantaged retirement accounts and set your investments to go into a Lifecycle TSP fund or Vanguard Target Date fund. If you have educated yourself a bit more, then you can adjust your asset allocation to achieve financial independence earlier.
10) Enjoy your new found financial freedom! Congratulations! After a few short years or months of following these steps, you should:
- Be debt free
- Have a comfortable emergency fund
- Spend money on the things you want
- Save for the things you want and want to do
You are enjoying all life has to offer and are happy and secure in your financial success. This is NOT a get rich quick scheme. This about creating an environment for you to maximize your income, minimize your expenses, and save for the things that are important to you. You CAN be wealthy during your military service!