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The following is a guest post from Robert Shaye, a Coast Guard veteran and spouse. Robert is now a CFP® professional with Fireside Finances.
As part of my Military Influencers Conference (MICDC) 2019 Spouse Ticket Sponsorship, I am publishing the best guest posts I received.
One of the guest post authors will win a VIP ticket to the 2019 MIC in Washington in September plus $500 cash to cover expenses connected to the conference (airfare, hotel, food, etc.) Learn more about the Military Influencers Conference here.
I’ll never forget the feeling of looking in my checking account and seeing the $25,000 deposit come in. “USAA Career Loan – $25,000” the transaction read. The year was 2003, and I was a 21 year old “Second class cadet” at the US Coast Guard Academy.
Our class had just been given what was officially called a “career starter loan,” but it was known to the cadet corps affectionately as a “car loan.”
As a bunch of young twenty year olds, this was the largest chunk of money most of us ever had in our own hands, at once.
The terms were great — 1.0% interest and a 5 year repayment schedule. That worked out to be $433/month, and the payments didn’t begin until we graduated about 14 months later, when our paychecks kicked in.
Most cadets use this money to purchase a car, though as an unsecured loan, it could be used for any purpose.
How I Used the USAA Career Starter Loan
I used $20,000 of the loan to purchase a reliable used car (a 2000 Toyota 4Runner.) The rest of the money went towards funding my current year Roth IRA.
My car wasn’t as flashy as my classmates who bought a BMW 3 series, a new Grand Cherokee, or even a Porsche Boxster, but, a used 4Runner was perfect for me. Plus, it was a stick-shift, which reminded me of being 10 years old and my dad letting me shift from the passenger seat.
Graduation came and went in May of 2004 and the $433 payments soon kicked in. I remember watching my loan balance decline and thinking — “boy, this is sloooow going!”
But month after month, the loan balanced dropped and before I knew it, I was more than half-way through the repayments. That’s precisely when the idea came to me….
When Your Debt is Gone, Pay Yourself First
I would keep the monthly $433 deduction from my checking account going, even after the loan was paid off in full. I was accustomed to the deduction already, and I was living comfortably within my budget.
Since it took me exactly 5 years to pay off the $25,000, I knew if I kept the contributions going for another 5 years I would have $25,000 in my savings account (plus a little more for interest). The money got parked in a high-yield (relatively speaking) savings account and I even named it “New Car Fund.”
In the summer of 2014 my savings account balance finally reached its goal — $25,000. It felt pretty darn good to hit that milestone and to be honest, it didn’t seem too hard because everything was on auto-pilot.
My original intention was to use the money to buy a new car, but fortunately the 14-year old 4Runner was still chugging along just fine. It survived four cross-country road trips, many weekends to the ski slopes in Lake Tahoe, and even some unintended off-roading in southern Montana — where, for the record, it is still possible to lose a paved road and genuinely get lost.
Instead of buying a new car, I decided to invest the $25,000. I also kept the monthly contribution active. Instead of going into a savings account though, I now have it going directly into my taxable investment account.
So while thinking about saving a large sum, such as $25,000, can sound overwhelming, when you break it down and put the recurring contributions on auto-pilot, your goals can become reality quite quickly.
And for the 4Runner — she’s still doing just fine, even as year 19 approaches!
Pro tips:
★ “pay yourself first” by making the transfer to savings happen immediately after your paycheck comes into your checking account on the 1st and/or 15th of the month. Don’t fall into the trap of “saving what’s leftover” at the end of the month!
★ The amount you are saving each month should be slightly “painful.” If you aren’t feeling a pinch, time to up your contribution amount! (Kind of like getting your braces tightened as a kid. You knew it was working because it hurt just a little.)
★ Received a raise at work? That’s a great time to increase your recurring contribution amount!