Every week the military gets new members either through basic training or officers getting their commission.  Many of them have only recently graduated high school or college and this will be their first step in being independent.  It is a scary, exciting feeling for many and very easy to get overwhelmed.  Among many questions they ask, one seems to be constant:

What should I do with my money?

The majority of people entering the military will have very limited (if any) financial education and all of a sudden significantly more money than they have been used to.  Most of them have been used to having things pre-budgeted for them, whether because they lived at home and had little to no expenses (or income), or because their schools have allocated their financial assistance/scholarships through the right channels automatically, making financial planning that much easier.

Admittedly, the world of personal finances and especially investments is very vast and easy to get overwhelmed in.  There are rules about what % you should save, and what to spend where everywhere you look and many are either outdated or make sense for your coworker, but not you.

Luckily, there are a few universal truths which, if followed, will set you up for success in or out of the military.  So how do you get on that financially successful path?

1. Spend LESS than you earn

Seems pretty self-explanatory, right?  If only that was the case!  It is so easy to go out and get a car and have a payment that leaves you with just enough to cover insurance and gas.  You think to yourself – well, it’s brand new and under warranty, so things won’t break and since I have a meal card and the dorms (or BAH/BAS), I have no other expenses!  However, things DO happen.  A tire blowout or windshield crack won’t get covered by insurance for example, but since you recently got yourself a star card with a few hundred dollar credit limit, you max out and think you’ll be ok.  Then, you get notified that something happened at home and you need to take emergency leave (and incur travel costs) to go back.  It snowballs quickly and next thing you know, you’re standing in your commander’s office trying to explain your finances and irresponsibleness and possibly facing discipline which will do even more harm to your financial situation.

I say all of the above because I have seen it.  My first roommate when I moved off base couldn’t afford to get a 6-pack of beer outside of a payday weekend multiple times because of his car payment, insurance, cell phone and the occasional lunches/dinners/bars with co-workers he went to that month.

2. Pay YOURSELF first

Now, I will caveat this with the following: if you have prior debts that are high in interest (generally anything above 5%), pay THEM off first.  Once you have broken even, then heed the following advice.

You should set aside at least 10% to go to your savings.  Now, when I say 10% for the military folks, I mean 10% of your TOTAL paycheck – not just your base pay.  First, set aside an emergency fund to last you at LEAST 6 months and to cover the major things that might come up.  Have enough to fly home in case something happens with your family members.  Ensure you are able to pay the car repair bill if something big happens (blown transmission, etc.).  Once that’s done, setting a 10% figure in your TSP through mypay is great, but after you add in the various allowances that we get, it’s not very much in comparison.  

Also keep in mind that 10% savings rate – while a lot better than the average working person today – is still not enough to get you to retire early in most circumstances.  It will, however, set you up for success at retirement age and prevent you from having to work into the grave.  Of course depending on your pension benefits and other investments you may make throughout your career, you still might be able to do so, but that will be covered more in depth in the future.

3. Build the life you want prior to saving for it

Imagine the future at your retirement.  Think about what you want at that moment.  For some, this might mean a cottage in the woods surrounded by acres of land.  For others, they are fine with a small bungalow as long as it is with their family and loved ones.  Everyone’s dreams and priorities are different.  The point is – do not lose sight of what is truly important to you just to save a few dollars.  If you want to have experiences with your significant other, HAVE THEM, just do so responsibly.  Do not focus so much on the future that you lose sight of the present.  Now, this does NOT mean for example, that if you are into cars, you go out and finance a $70,000 BMW or Mercedes.  Think instead of buying a used vehicle that will do what you want while setting aside a few hundred dollars for upgrades to the car, or maybe for a future purchase.

At the end of the day, being a slave to money because you are constantly in debt is an awful feeling, so is being a slave to money because you are trying to maximize every single cent into retirement funds.  

While the above are very basic – and I do not want to overwhelm those who may be new to saving – If you follow these three VERY basic tips, you will be on the path of financial success