{"id":238444,"date":"2019-11-11T07:00:45","date_gmt":"2019-11-11T15:00:45","guid":{"rendered":"http:\/\/getrichslowly.org\/?p=238444"},"modified":"2023-12-05T14:16:21","modified_gmt":"2023-12-05T21:16:21","slug":"military-money","status":"publish","type":"post","link":"https:\/\/www.getrichslowly.org\/military-money\/","title":{"rendered":"How to manage money for financial success in the U.S. military"},"content":{"rendered":"
Howdy! I’m Spencer, an active-duty Air Force officer investing for financial independence<\/a> by age 40. Since 2016, my wife and I have saved half of my active-duty paycheck into our financial independence accounts. I started writing in 2012 about achieving FI in the military on my website Military Money Manual<\/a>.<\/p>\n Because J.D. has no experience with the military, for Veterans Day he asked me to share the lessons I think every servicemember needs to know about getting rich slowly. These are the concepts I wish someone had explained to me as a newly-commissioned officer in 2010. (These lessons are just as applicable to the enlisted side of the house.)<\/p>\n I’ve split this article into two sections.<\/p>\n First, I’ll cover some basic lessons for beginners: taking care of yourself, emergency funds, military friendly banks, tracking your money, and TSP investing.<\/p>\n Next, I’ll cover some advanced topics: investing for financial independence, military deployment, travel, and military credit-card perks.<\/p>\n Let’s start with the basics.<\/p>\n <\/p>\n One of the harshest life lessons you must learn early in your military career is this: “No one is looking out for you except you.\u201d<\/p>\n You must take responsibility to educate yourself about saving, investing, spending, and achieving financial independence. If you have a really good supervisor or commander in the military, they may explain the Thrift Savings Plan<\/a> (TSP) to you, but that’s probably it.<\/p>\n If you want to achieve financial independence in the military, you need to learn how to do it yourself. There are many resources available to learn about money, including:<\/p>\n I believe it’s important to always be learning, to always be asking questions. If you have questions about your military pay, benefits, or personal finance, type them into Google. Ask your supervisor. Ask your buddies (but don’t always take their advice haha).<\/p>\n Never be afraid to ask questions. Keep yourself educated about money.<\/p>\n While you can certainly use a regular bank to manage your money (and Get Rich Slowly maintains a list of online savings accounts<\/a>), I recommend finding a military-friendly bank. Certain banks and credit unions are dedicated to helping military service members. They understand the difficulties unique to our situation. For instance, USAA has never shut down my ATM card despite withdrawals in over 40 countries.<\/p>\n Some of the largest and most recognized military-friendly banks include USAA<\/a>, Pentagon Federal Credit Union (PenFed<\/a>), and Navy Federal Credit Union (NFCU<\/a>).<\/p>\n Look for a military-friendly bank that offers ATM fee reimbursement and that doesn’t charge fees on your accounts no matter what your balances are. Many military-friendly banks will deposit your military pay one business day earlier than your actual payday. This is a nice feature to get access to your money a little earlier each payday.<\/p>\n Unlike your civilian counterparts, you’re unlikely to be suddenly fired from the military. Because it’s a government job, you would at least get a few months notice if you were involuntarily separated.<\/p>\n You also don’t have to worry too much about surprise medical bills. Tricare<\/a> is one of the best healthcare insurance networks in the U.S., and the military medical system is one of the most affordable. You will rarely, if ever, have a co-pay to see a doctor or pick up a prescription.<\/p>\n So, if you don’t have to worry about medical expenses or getting fired, why worry about saving an emergency fund<\/a> in the military? Because things always go wrong.: cars break, payment of travel vouchers is delayed, the government shuts down, and so on.<\/p>\n Plus, you know how unpredictable military service can be. You may be called away suddenly for a contingency operation in Africa when the car breaks down at home, preventing your husband from getting to work.<\/p>\n Many times when you receive PCS (permanent change of station<\/a>) or go TDY (temporary duty assignment<\/a>), your expenses won’t be immediately reimbursed. If you have an incompetent finance office, it may be weeks or months before you finally get paid for that trip.<\/p>\n When you have an emergency fund, you can cover these expenses and not sweat it while finance gets their act together.<\/p>\n When the government shut down in early 2019, members of the Coast Guard went unpaid<\/a> for an entire pay period. This was an extremely stressful time for many folks. You can insure yourself against political theatrics like this by having an emergency fund.<\/p>\n How big should your emergency fund be?<\/a> I recommend starting with $1000 and then saving up so that you have enough to cover six months of expenses.<\/p>\n Personally, as an eight-year captain, I have $10,000 in my emergency fund. This isn’t six months of expenses, I admit, but it will cover two plane tickets to fly me and my wife home in case we need to be with family in an emergency. And $10,000 will cover all but the most serious car repairs. It’s the amount that lets me<\/em> sleep easy at night.<\/p>\n Trust me, I hate budgeting. But if you want to achieve financial success — in the military or otherwise — it’s important to understand where your money is going. This helps you determine if you have optimized your spending to make you happy.<\/p>\n Here’s an example: Let’s say you notice you’re spending $100\/week on Buffalo Wild Wings. But you don’t even like wings and beer that much. And you’re trying to lose weight. Well, it looks like you found a great expenditure to eliminate! Most of us can find spending like this to trim from our budgets.<\/p>\n To make tracking easier, I recommend apps like You Need a Budget<\/a> (YNAB), Personal Capital<\/a>, or Mint<\/a>. Or, if you like computers, track your money in a simple spreadsheet.<\/p>\n The key is to make sure that your spending aligns with your goals, that you’re happy with what you’re spending money on.<\/p>\n As for me, I hate budgeting, as I said. After I trimmed the obvious fat from my spending, I adopted what I call an “anti-budget”. I save half of my income into my investment accounts (TSP, IRA, taxable brokerage, and cash accounts). I spend the rest of my money and don’t worry about it. This system is simple. For me, simple is best.<\/p>\n I don’t enjoy analyzing my budget, so I make sure the big three expenses — housing, transportation, and food — are correct, then I live my life. If you get these three right, you can take care of 80% of your savings for only 20% of the effort.<\/p>\n The military’s version of a 401(k) is called the Thrift Savings Plan<\/a>, or TSP. It’s a boring name that doesn’t really sell the fact that it’s one of the best retirement plans available in the world<\/strong>.<\/p>\n The TSP offers five funds, which together make up most of the investable assets in the world. These funds are:<\/p>\n In addition to these five funds, you can also invest in TSP Lifecycle funds<\/a>. These are target-date retirement funds that automatically adjust their mix of stocks and bonds over time. In theory, they deliver higher returns with more volatility early in your career, then they become more bond heavy as you age.<\/p>\n The TSP expense ratios are famously low, usually around 0.04% annually. That means for every $1000 you invest in the TSP, you pay $0.40 per year in management fees. That’s it! (And that’s amazing.)<\/p>\n Even on a $1,000,000 portfolio you’d pay only $400 per year. These fees are some of the lowest available in any retirement plan.<\/p>\n You can contribute up to $19,000 into the TSP in 2019. If you deploy to a combat zone, you can contribute up to $56,000.<\/p>\n The TSP is an employer-sponsored retirement plan, so it’s completely separate from your IRAs, or Individual Retirement Accounts<\/a>. That means you can put $19,000 into your Roth TSP and $6000 in your Roth IRA \u2014 $25,000 total for a year!<\/p>\n If you could contribute $25,000 to your IRA and TSP for a full 20-year military service, you’d have $1,100,000 after 20 years, assuming a 7% return. If you entered military service at age 20, retired at 40, and left the $1,100,000 to grow until age 60 at 7%, you’d have $4.2 million. That’s the power of compounding<\/a> and paying yourself first!<\/p>\n<\/span>Educate Yourself<\/span><\/h2>\n
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<\/span>Find a Military-Friendly Bank<\/span><\/h2>\n
<\/span>Build an Emergency Fund<\/span><\/h2>\n
<\/span>Know Where Your Money Goes<\/span><\/h2>\n
<\/span>Get Your Full TSP Match<\/span><\/h2>\n
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