The military presents both unique opportunities and challenges when it comes to managing money. With frequent relocations, deployments, special pays, and housing allowances, service members navigate a financial world unlike any other. Without a solid strategy, it’s easy to feel overwhelmed—or worse, fall into financial pitfalls that can have lasting consequences. However, by understanding these complexities and making informed decisions, service members can maximize their benefits and build a strong foundation for long-term financial freedom.
Every service member should strive for Financial Independence in Retirement. The following plan provides a strong foundation to help you start that journey. By following these steps, you’ll be well on your way to achieving financial freedom.
- Start Saving: Contribute 10% of your pay to the Roth TSP, investing in the Lifecycle Fund that aligns with your expected retirement date. Over the past 30 years, the stock market’s average real rate of return has been approximately 7%, and the Lifecycle Funds have delivered similar returns.
- Eliminate Debt: Focus on paying off high-interest debt, especially credit cards, which often carry rates of 18-25% or more. Carrying a $1,000 balance on a credit card with a 20% interest rate and making only minimum payments could cost you over $200 in interest in just one year—and much more if you only pay the minimum over time. Paying off high-interest debt quickly frees up more money for saving and investing, accelerating your path to financial freedom.
- Create a Safety Net: Start by saving at least $1,000 in an emergency fund to cover unexpected expenses. Once that’s in place, gradually work towards building a fund that can cover 3-6 months of your monthly expenses. Having this financial cushion ensures you can weather financial setbacks, such as job loss or unexpected emergencies, without relying on credit cards or loans. The goal is to create a sense of financial security and avoid unnecessary debt.
- Invest and Grow Wealth: Start by maxing out your Roth TSP to take full advantage of tax-free growth and the military’s matching contributions. Once you’ve reached your TSP limit, consider opening a Roth IRA with a reputable investment company like Vanguard, Fidelity, or Schwab, to continue building wealth in a tax-advantaged account. By contributing to both your Roth TSP and Roth IRA, you diversify your retirement savings and further benefit from tax-free growth. Focus on low-cost, diversified investments like index funds or ETFs to keep your portfolio growing steadily over time.
- Create a Budget: Be Realistic About Wants vs. Needs
Avoiding Financial Pitfalls: Military life comes with challenges like predatory lenders, impulsive spending, and the allure of flashy purchases. This chapter highlights common mistakes and provides strategies to keep you on the right track.