Hello, my “been in the military awhile” friends! By now, you’ve probably found your financial footing, but know that there is always room for improvement. Whether you are planning to leave the military soon, or hope to serve to earn military retirement, there are some basic money moves that will help you continue to build your financial plan.
This post is part of a series on the best money moves for each chunk of ranks. Obviously, everyone’s situation is going to be different. That’s why we call it personal finance. It’s personal. But given average ages and similar incomes, different sections of the rank structure will often be at similar places in their financial plan. So, it isn’t really about rank, it’s about where you are. It just so happens that often people of similar rank are at similar places.
If you read this, and think “I’m not quite here yet,” don’t worry. Step back to The Five Best Money Moves for Military E-1 throught E-5 and start there. There’s nothing wrong with that! I’m here to meet you where you are! If you’re already doing all these things, check out one of the other posts for some ideas!
Disclaimer: This article is not a replacement for financial coaching or advising specific to you. Consider making an appointment with your installation’s personal financial counselor to go over your financial counseling needs.
Keep Contributing To TSP (Or Start If You’re Not Contributing Now)
The military’s Thrift Savings Plan is a simple and inexpensive way to save for your retirement, and have retirement savings that are yours to keep even if you don’t serve for 20 years. Wherever you are with TSP, stick with it, and make plans to move up your contribution with your next pay increase.
If you’re in the Blended Retirement System (BRS), be sure you are contributing at least 5% to your Thrift Savings Plan account. This will get you the full government match and you’ll be getting a total contribution of 10% to your TSP account each month.
This mid-career time is often a time when folks look at TSP and think, “Ugh, I can’t afford that right now.” It’s tempting to decrease your TSP contributions, “just for a little while.” And then it’s three years later and you can’t make up that time. I encourage you to dig deep and be ambitious about how much you can manage. One nice thing about TSP is that changes to your contributions can happen pretty quickly through myPay, usually within the month. If you discover that you absolutely can not survive due to the size of your TSP contributions, you can always temporarily cut back a percentage or two.
EXTRA CREDIT: If you are married, be sure you are contributing to your spouse’s retirement, either through their work or through an Individual Retirement Arrangement.
Go bump up your TSP contribution by 1% for a month, and see if it makes a noticeable difference in your lifestyle.
Grow Your Emergency Fund
Hopefully, you already have a bare minimum emergency fund. Now it’s time to work on a larger emergency fund, one that many folks call a “fully-funded emergency fund.” If you don’t have one, open a separate savings account specifically for this purpose. Most banks and credit unions let you name your accounts, so take advantage and give yours a compelling name. Maybe it’s simply “Emergency Fund,” or maybe it is more creative. Whatever works!
Then, make a plan to fund this account. Paying yourself first always works. Set up an allotment or automatic transfer to go out of your account in the second and sixteenth of the month.
EXTRA CREDIT: Establish or grow your special savings accounts for specific future spending. Common categories include vehicle replacement (and/or repair), travel, health care expenses, education costs (gosh, schools ask for a lot of money!), pet expenses, PCS costs, new furniture, home repairs, sports fees, pool dues, or whatever other larger expenses you pay irregularly. List how much you need for these costs in an average year, and set up an automatic funds transfer to the special savings account for each paycheck or month. (I do monthly, but in amounts that equal out by paycheck. For example, I have $500 go into car replacement on the 2nd of each month, and $500 go into health care expenses on the 16th of each month.)
Build Your Transition Fund
No one stays in the military forever. Whether you serve 4 years or 40, one day you will wake up a civilian. That transition can be super-smooth or terribly bumpy. A significant chunk of money put aside for the costs of transition can help smooth even the bumpiest of rides.
How much does your transition fund need to be? Every situation is different. Are you married, do you have children? What income do you have besides military pay? Will you earn military retirement pay (keeping in mind that many people end up leaving the military unexpectedly)? How employable are you, really? What’s your debt situation? How much money does it cost to keep your family running each month?
Many people want three to six months expenses, more never hurts. I have never heard anyone say, “I wish I hadn’t saved so much money for getting out of the military.”
EXTRA CREDIT: As a little exercise, build a post-military budget and see how it looks. It can be fascinating. And terrifying. But always useful.
If You Are Going To Buy A House, Buy Smart
While the math rarely makes sense for military families to buy houses while on active duty, I completely understand that buying a house FEELS GOOD. And if you have pets, or don’t want to have to move mid-tour, or need something specific, or just want to paint your rooms purple, that can be enough reason to buy a house even when the math doesn’t make sense.
But if you are going to buy a house while you are on active duty, do it smart.
Expect that your property may someday become a rental. A soft market, short-term orders, or being underwater on your mortgage can mean that you can’t sell when you want to sell. Be sure it is a property that will work as a rental, both in being appealing to rent and that the numbers work. (Pro tip: Rent is more than mortgage is NOT a good metric. It’s a horrible metric.) If you can’t find a house that makes sense, don’t buy.
Don’t buy with no down payment. If you do this, you’ll almost definitely be underwater to sell for the first few years due to the costs of selling the property. Double that if the market softens or you roll your VA funding fee into the loan. Plus, if you decide to rent instead of selling, a larger down payment means a smaller monthly payment – which helps to make it a better rental.
Buy a house that you can pay the mortgage on top of your regular monthly expenses, because you might have to do that if you get PCS orders to move. Or have a significant amount of money in savings to pay for at least six months of the mortgage.
Start building your house emergency fund ASAP. How much you need will vary based on the size, age, and complexity of the house. The goal is to be able to address two large repairs at once, maybe a roof and an HVAC system? Sure, you won’t need that now if you buy new, but one day your house will be 15 years old and it will need a roof, and HVAC and new windows all at once. You’ll be glad you started saving early. This same fund carries over if your home becomes a rental.
EXTRA CREDIT: Whether you choose to rent or buy, find ways to save on housing expenses, whether you are renting or owning. Turn the thermostat down and cover windows at night. Choose to live closer to work to cut commuting costs. Learn how to do basic home maintenance (hello, YouTube.)
Keep Your Lifestyle Upgrades Small
Now that you’ve got a solid financial foundation, it’s normal to want to have a little fun. And fun is good! Whether it’s going out to a restaurant for date night, buying a special item that you’ve saved up for, or traveling (post-COVID), enjoy spending a small portion of the money you’ve worked so hard to earn and save. Just don’t go crazy. Keep in mind the long-term ramifications of your spending.
EXTRA CREDIT: Find inexpensive splurges that make you feel happy. We like an evening sitting on the beach as much as just about any other entertainment. A really good steak from the grocery store is a fraction of the cost of going out to eat.
Mid-career is the place where you can really grow your financial plans. The personal financial professionals at your family service center can help you figure out how to do these things. Once you outgrow the services of the free advice on base, consider picking a fee-only financial advisor. (Check out the members of the Military Financial Advisors Association.)
Do you want to know more about your military pay and benefits?
Things change fast around here! Keep up-to-date with email alerts about the topics that are important to you!