As you may have read in the “about” section, I started this blog with the intent to EDUCATE.  I would like to dwell a little bit more on that, if I may.  What do I exactly mean by those words?  The dictionary defines “educate” as

How were they going to paying their rent?  Or their car payments?  Even groceries were brought up in some extreme cases.

MY “HOW” question was this:

How could they possibly BE in this situation?

I will be honest, I firmly believe that us military members (to include those that are enlisted) make plenty of money to AT MINIMUM have a decent life.  I will admit that you will not be able to have lobster and caviar multiple times a week for dinner, or take first class to your next all-inclusive trip to Fiji.  However, you should be able to put quality food on your table, drive a decent car, have some (expensive) hobbies, and overall enjoy life while still having the ability to save.

First, let us discuss our compensation.  I will use myself as an example in both my first and current base (and situations).

Since I was there from the rank of A1C (E3) throughout making SSgt (E5), I will use an average 2+ year E-4 pay – which is currently $2370.30, or ~$28,440 per year.  As I was a CA resident, I was not mandated to pay state taxes, but for the sake of this example, I will include them as it is only a $500 amount.

That $28,440/year adds up to $23,565/year AFTER taxes in strictly our base pay.

As a SrA I was able to move off base, which meant BAH!  My first duty station was in a relatively average-priced area, with BAH for a single SrA currently set at 960.  Since we are talking about our current scenarios, I will use this number for demonstration purposes (and it’s actually almost identical to what I was getting a few years ago).

With SINGLE BAH @ 960, that SrA is now making $35,085/year after taxes.

Add in BAS, and the amount is now $39,517.68.

Of course, my initial amount did not cover the deduction for SGLI at $5/mo, or if you lived in states with a higher tax responsibility.  For argument’s sake, we’ll just say an average E-4, in an average COL area, your take home is at $39K, or $3,250/mo.

I will not say that this is a huge amount of money, but it is absolutely huge for someone who typically has little to no formal training or higher education.

This amount though, is compounded further due to our (complete lack of) medical costs.  Not having to worry about buying suits or even business casual outfits you need to go to work in.  Having access to the commissary which has quite a few cheaper priced items than the regular supermarkets.  All of this adds up.

The average price of a 1 bedroom apartment at my first base was ~$700.  Some people spent more while some spent as low as $400 in slightly shadier areas of town.  Others got roommates and were able to save even more money.  However, I will stick with the average.

$700/mo in rent, with $50/mo average electricity costs and $30-50/mo for cable or DSL internet.  It was a common practice for the landlords to pay for both water and gas costs there, so I will not add them in.  In reality, even when I got my 3br/2ba house there prior to PCSing I paid maybe $20/mo in those costs – even while having a gas oven range!

Overall, a total of $800/mo, which brings our monthly total to $2,450.

Then of course, we need food!  Since many military people also enjoy a good helping of camaraderie, I will even say we need alcohol!  Beer, scotch, whatever floats your boat.  I love good craft beer and would drink at least one a day with my dinner or when I would go out, and a few more when I would go to get togethers and so on.  Overall, my budget for food and drinks never went above $600/mo to include restaurants and bars.  I would like to add a side note here and say that I ate WELL.  Steaks at least two times a week.  Huge helpings of various fresh veggies and grains.  Lots of fruit and berries… it was not an issue.

With that being said, we are now down to $1,850.

Well, what’s next.  We need a phone!  Gotta swipe right on something, no?  Multiple plans are available at walmart from $20/mo if your phone is unlocked.  I was still on my brother’s plan and we were (and still are) splitting it at $50/mo.  I’ll go ahead and keep the $50 figure.

$1,800 now.

Following shelter, food, and a phone – we have to have some transportation.  I will absolutely not play the game of “let’s go out an buy a brand new mustange at 20% APR” and instead will assume that if you are reading this and are actually trying to improve your situation, that you are sensible enough to, well… get something sensible.  I went a little beyond myself and ended up buying a 7 year old G35 for 10K.  I feel that there are a lot of cars in the 8-12K range that are not only acceptable, but even COOL to drive for new military members that will not cost an arm and a leg in repairs.

While I had great credit, I will use an average 7% interest rate (hint: you can get this lowered by using the SCRA with certain credit card companies and buying the car on a card!) over 36 months for a monthly payment of $309.

$1,491… getting a bit low now after our initial figure.

Especially since we have yet to add insurance and gas.

Average insurance cost for full coverage is ~$100/mo in my experience on said reasonable car.  I paid this amount with two accidents on my record in one of the highest insurance costing states.  (In comparison, that same insurance if I stayed in CA and had no accidents would cost about $140 over 6 months).

Add in a slightly longer than typical (for military) commute of 30 miles a day to include weekends and averaging a paltry 20MPG (because racecar) on $3 per gallon gas, you’re sitting at $135/mo for gas costs.

So, after insurance and gas, you would be at

$1,256/mo IN YOUR POCKET after ALL necessary expenses (that total ~$2K/mo).  Let’s subtract various maintenance costs of the vehicle and replacement of not only uniforms, but various home electronics and furniture… you should still be left with $1K/mo.

$1K in your pocket as a 2 year E4 while still eating and drinking extremely well, driving a car you won’t be ashamed to pick up your latest “Netflix and chill” date in, and living in a decent apartment with decent furnishings.

Even if you are stuck living in the dorms and not “profiting” off a whopping 160/mo in excess BAH as I used in my example, you would still be able to save over $800/mo – although this would likely even out with our off-base member since a dorm rat’s food costs should be lower by using a meal card.

Then you add in basic training and tech school, where you should have saved some money.  The previous years of living in the dorms… All of these things should increase your monthly take-home even more, as you would have already bought your electronics as needed and saved a sizeable sum for a downpayment of a vehicle and thus reducing your payments.

I will add a caveat here that those that are single parents with kids will likely get a bit screwed and will need to adjust those numbers just to scrape by.  While you will get more in BAH, you may also need to pay for childcare and your child’s necessities, even if you decide to continue with a 1BR place.  For those that have a spouse AND a kid, your overall situation should not be as significantly impacted as you will either have a SAHM/D, or extra income to absorb that cost.  You can easily feed and clothe your child for $300/mo on the higher end – and I have seen family members and friends do just that.  Of course, the more kids you have, the more difficult it becomes and as I just stated, you will need to prioritize certain expenses over others to keep up some kind of savings.

Back to the topic though, saving $800-$1000 should easily be attainable for the majority of E-4s our there.  If you missed my personal numbers, you can find a generality of them in my post about my New Year goals here.

So what, then, should you do with all those moneys?

Well, here is where I rant about Dave Ramsey…

If you are unaware of the name, Dave calls himself “America’s trusted voice on money and business”.  He has a third largest/most popular talk radio show and has written books as well as held various seminars.

While I do not dislike him as a person, or as an educator in his own right, I have an issue with people that parrot his advice as gospel without really tailoring it to personal situations.  This seems to be common in the military, likely due to his popularity and the military as a whole largely having issues with money and money education.

His 7 pillars – or “baby steps”  – are as follows:

• Baby Step 1 – $1,000 to start an Emergency Fund
• Baby Step 2 – Pay off all debt using the Debt Snowball
• Baby Step 3 – 3 to 6 months of expenses in savings
• Baby Step 4 – Invest 15% of household income into Roth IRAs and pre-tax retirement
• Baby Step 5 – College funding for children
• Baby Step 6 – Pay off home early
• Baby Step 7 – Build wealth and give!

I’m going to address steps 1 & 3 together here.  Starting an emergency fund is not a BAD thing.  However, you need to be aware what an emergency fund is FOR.  You also need to be aware that everyone’s emergency fund SHOULD be different.  I am not only talking about that E7 with three kids and four new cars having a different amount than an E3 who does not have any commitmets and drives a Civic.  I am talking about the SPECIFIC emergencies that one should save for.  A person who drives a Civic will need to account for far less in an emergency repair than someone who drives a new BMW for example.  A person who rents will not need an emergency fund to replace the AC or the roof, as another.

Most importantly, an emergency fund is primarily marketed as “6 months of expenses” because most people have very limited job security.  Last I checked, aside from doing something egregiously stupid (i.e. DUI, sexual harrasment/assault), our jobs in the military are quite secure.  Having a 6 month $15K emergency fund as a single 20 year old E-4 does not make sense when you can use that money to significantly help yourself via compounding interest in the investing world.

Now keep in mind that you should have some means to take care of an emergency ASAP.  I would advocate that one should save enough to fly home and maybe a few days of hotel/food if necessary.  If you have a travel credit card and have enough points to do so for a flight out tomorrow, that is something that can decrease your actual emergency fund – assuming you do not waste those miles to a flight elsewhere!  Also, save enough to cover MAJOR car repairs at once (i.e. radiator starts to leak while your tire blows out and the transmission is acting funny).

My personal thoughts on an emergency fund?  $5K should do the job for younger, single folks.  Of course, the more responsibilities you have, the higher it should be.

So… step 2 – Pay off all debt using the Debt Snowball.

I 100% disagree with this statement.  All debt is NOT bad.  Debt is a TOOL.  Without debt, the entire world economy will crash and burn in seconds.  Debt is essentially creating money where there isn’t any.  Dave’s advice to avoid debt is often linked to Proverbs 22:7 (as he is an evangelical Christian) which states “The rich rule over the poor, and the borrower is slave to the lender.”  While I admire his conviction and faith, a bible verse is not a substitute for logic in financial matters.

0% APR debt is literally FREE money.  This is because the average inflation for the last couple years has been 2%.  The AVERAGE rate of US inflation is 3% each year.  This is the reason that people advise others not to pay off sub 4% loans, as the interest is usually tax deductable and makes it an even wash (or even lets the borrower come out ahead).  Also, because $1,000 in a market that on average returns 7% post inflation (a whopping 21%+ the last year) is better than getting a return of 1-2% after inflation on said low APR debt.

Please do not take this to mean “acquire as much 0% APR debts as possible and dump it in the stock market”, because you never do know what can happen.  I toyed with the idea of getting a cash advance on my $0 fee/0% APR credit card prior to my PCS.  I am glad I waited though, because I ended up getting screwed over by my losing base and I ended up spending almost $10K that I should not have had to.  Shortly after I paid that expense off, they sent a letter saying they will no longer honor the 0% APR, so please, PLEASE be responsible with the debt you might accrue.

Aside from that, you have houses – how many people buy houses in cash?  Not many!  Landlords purchase homes where they’re making hundreds of dollars over the mortgage payment.  My 2nd home’s mortgage is $700 for example, but my rent is $1,200/mo.  After tax deductions, the loan is something I am 100% comfortable in keeping and trying to get as many more as I can afford ASAP before they raise the interest rates up higher!  Businesses get debt from the banks and government so they can take advantage of getting new tools NOW and pay for it with those tools’ profits LATER.  Why would you not do the same?

Again – absolutely stupid advice.

I will say that if you DO have debts over 4%, pay them off ASAP.  And don’t do the debt snowball method of paying off the smaller ones first either. Prioritize your high APR debts over anything else.

Step 4 – Great, if you don’t have a pension or would like to work until social security age.  I would rather retire early, which means a much more aggressive savings rate.  Even with a pension, I’m aiming for a higher cost of living than it would provide.  I personally aim for at least 30% of my income.

Step 5 – Interesting topic for military folks with our GI bill.  You can split it for your kids or spouse if you plan on making military a career.  It is not too difficult to get a degree using TA at nearby physical schools, or even online schools (do not go to for-profit colleges), and keep the GI bill for your dependents down the line severely cutting costs in the future.

Additionally, my personal thought is that while I want to assist my children in education costs if they need it, I will not be funding 100% of their college experience or anything close to that.

Step 6 – see step 3.  Stupid, stupid, stupid.

Step 7 – Great, build wealth for sure.  However, if you follow some of these steps, it is actively hindering your ability to build wealth vs someone who is being more logical in their methods.  As far as giving, do what is comfortable.  I support a few charities and make donations to causes that I believe in.  For some people, they want to give hundreds of dollars monthly, for others, it’s a few bucks a year.  Do what you are comfortable with and remember to be humble and realize how lucky you are in your position.

Here are MY 7 steps:

1. Pay off all debt that is over 4% APR ASAP, starting from the highest interest.
2. Pay off all revolving debt (i.e. your credit card) every month.
3. Put 10% at minimum into your Roth TSP whether you are doing the blended retirement system or not.  If you are planning on getting out, make sure you have a few hundred in your traditional TSP account so you can roll over future 401k’s into the TSP to take advantage of the low expense rates of the funds.
4. Depending on when you joined, try to fully fund your Roth IRA ASAP for the year.  This is currently $5,500.  A Roth IRA is more flexible than a Roth TSP and offers more investment fund choices.  Many companies (like Vanguard or Schwab to name a couple) offer similarly priced offerings as the TSP if you want to follow that fund route as well.  Since you can only invest that amount every year, it is important to fund it before tax day.
5. Emergency fund of at least $5K or fast access to funds that are at least $5K.  This can include high limit 0-4% APR credit cards that you should be able to pay off in a month or two, or say… talking to your parents to give you an interest free loan if needed.  Do not overload yourself with huge credit card debt just because it is a low APR.  Pay. That. Shit. Off.  See steps 1 & 2.

   * As a special note, I am completely fine with people using low interest credit cards as emergency funds for specific instances like the government shutdown.  If you are not living paycheck to paycheck, it is extremely reasonable to realize that the government will not shut down for month, or a year.  If you are able to put that 2.2k of living expenses I wrote about above  on a 4% APR card, it is likely that when the goverment reopens and you get your pay, it will not even be the end of the billing period.

6. Set aside 5% or so of your paycheck for future purchases.  Things like a new TV, phone, etc.  Do not use your emergency fund in lieue or in addition to these funds to buy something that you want.  Try to exercise discipline and not add more just to buy something “faster”.  There are some exceptions to this such as very specific items during black friday that won’t see those kinds of prices for another year, or something that is limited edition coming up that you might really want.
7. Kind of a two choiced program.  If your living expenses have increased due to a new car, or house, or even spouse/kids, add more into your emergency fund.  If your emergency fund is good, figure out what you want to invest in and tailor the rest of your excess moneys into it.  Want a “lazy” portfolio?  Add more and more into the TSP until you are practically living “paycheck to paycheck” after your TSP contributions – assuming you have a healthy emergency fund built up!  Want to invest into real estate?  Start putting that excess money into CDs or just in a savings account to purchase your property.

   Do NOT just throw it into a savings account with no plan because you WILL lose money due to inflation.

As always, feel free to shout out if you have any questions or want to discuss some of these things further!

-Art

Thankfully, I have been on vacation since NYE until now.  I didn’t take any laptops.  I turned off my e-mail notifications on my phone.  I uninstalled Facebook.  I didn’t even answer the phone.  All I used was my Uber app and Google Maps to get around and some mobile games to fill up time as needed.  I wanted a minimally intrusive vacation (for once) and ended up with some incredible travel memories without any stress from “the real world”.

My wife, however, was not as willing to let some technology go and spent some time on Facebook, which brought up the topic of resolutions during our trip.  Resolutions are a “touchy” subject for me.  

Normally, I loathe the phrase “NEW YEAR’S RESOLUTION”.

I feel that if you want to change something, you don’t need to wait until 1 January to start making those adjustments.  Start NOW.  However, I realize that not everyone feels that way and likes to have the slate “wiped clean” so to speak, before they start.

As always, what works for me may not work for you.  With that being said, instead of having resolutions specifically for the new year, I like to take some time envisioning what I am doing that year to achieve my ultimate goals.  Since most people read this for financial related musings, I will address that specific subject.

Main goal: Financial Independence/Retire Early (FIRE)

Sub goal: Achieve 100k annual income through investments and pension

The following are the steps I hope to take this year to contribute to the above:

1. Continue with 10% TSP contributions.
2. Max ROTH IRAs for myself and the wife.
3. Save enough to purchase an additional investment property to rent out (~25k on a purchase price of 120k).
4. After the above is met, raise TSP to 30% or more.

Things that are preventing me from achieving the above:

1. School costs.  My wife is going back to school as she is unable to work at our location.  Paying for college classes themselves, textbooks, misc supplies, and even potentially a new laptop – if necessary – is going to result in thousands of dollars of bills.
2. Travel.  We are stationed overseas, which means there is a plethora of options to travel, if we would like to.  Spoiler alert: we like to.  Our anniversary is coming up this spring and the plan is to take a week or so and have another amazing vacation.  Additionally, potentially going back to The States to visit family/friends as well as smaller scale (weekend) trips.  All in all, I would guess this will cost us another ~$5,000 for the year.
3. Gadgets/home stuff.  I’ve had the same camera for over 6 years.  I’ve outgrown its limited options and yearn for something better.  Because of our frequent traveling, I also want something that’s a bit more rugged and weatherproof.  Additionally, capturing these moments is important to me, so I want something a bit better than the regular consumer.  I’m shooting for a D850 before our big trip within 4 months.  After the body and lenses, that will probably be another ~$5,000.  My phone is also going haywire.  I’ll be waiting for Black Friday deals on that, but even still – that’s another $2-300.  The wife needs a few things for the house and would also like a Fitbit.  Add in some video games for me and we’re looking at about $1K for all that too…Yikes!
4. Misc emergencies.  Our second car is currently in the shop with a brake job.  I’d love to do it myself, but I don’t have the tools or the space at our house.  While I wouldn’t mind going to the auto shop on base, I haven’t done brakes in over a decade and it’s a bit more of an advanced job as I also need to replace the front caliper.  I don’t trust myself to finish within a day or two, and because we’re in a foreign country, I have no idea who to call in case things take a turn for the worst and the car becomes un-drivable.  I’m guessing $600 for parts and labor.  Things like that always add up – and it sucks!

Things that are helping me achieve the above:

1. Being overseas.  COLA is incredible.  So is the OHA/utility allowance.  While I can’t keep my unused rent money, I do keep all of the utility funds I don’t use.  This means we generally use thick blankets and walk around our house in sweatshirts to keep heating costs down, as an example.  There are folks who have spouses or kids at home and keep their houses at 70+ degrees 24/7.  They also get hit with a monthly gas bill of $800.  To me, that is unreal.  On the flip side, we pay about 2k/year in our gas costs.
2. Rent income.  While this doesn’t play into my goals this year (as my rent costs are just slightly higher than the mortgage – and I use the extra as my maintenance fund), it does greatly help with my main/sub goal.  A third house will further snowball things for me down the line and give me a little more diversification in case one is vacant for a few months.
3. Cryptocurrency.  Instead of buying the D850 camera upon return from deployment, I put a few thousand dollars into various coins.  I’m fortunate to say that my initial investment has been quadrupled within 4 months.  While half of that money has been converted back into dollars, the other half is still fluctuating daily with hopes of new highs.  I’m still debating if I want to jump back in or not, but with various stop losses for my coins, I will still be in the black if I choose to do so.
4. My wife’s accident.  While visiting the states, my wife was involved in a hit and run.  There were witnesses and one managed to take a picture of the offender’s license plate.  She had some injuries because of it and reached out to a lawyer.  We are looking at collecting anywhere from $5-15,000 right now, and significantly more if the doctor agrees to sign a statement that her additional issues are likely stemming from the accident (which to us seems very obvious, but apparently some military doctors don’t like signing anything to that extent). 
5. Basic budgeting.  While we don’t have a strict budget, we do adhere strictly to the golden rule of “don’t spend more than you earn“.  With that said, all of our living expenses (home, car insurance, gas, utilities, food) total at most $2,500.  My current monthly take home pay is in the $5-5,500 range.  If we are able to save $3k/mo (or $36,000 for the year) that covers the house and IRAs.  Hopefully, the speculative investments I have made continue to perform well and the wife’s school is cheaper than we believe it will be!

So there you have it.  My continued financial goals for the year.  Hopefully, you are able to better your financial future this coming year as well!  Just like the gym, everyone has to start somewhere.  Just because you are not able to save 3K/mo, or even $300/mo does not mean you should give up.  I started my career 7 years ago with a NW of negative $10-15K and even after blowing my first year’s paychecks on nonsense, I have crossed over the $100K mark in assets a few months ago.

As always, please feel free to reach out if you have any questions and have a kick-ass 2018!

– Art