There’s so much I wish I could go back and tell myself when I first joined the Army. I actually decided to just write a letter to myself as if I were joining today. I hope these words find a young service member somewhere and spark some action in them.
I say Army throughout, but you can substitute your branch of service. I decided to keep it Army to be more authentic to who I am and how I’d actually speak to myself.
Dear Young Service Member,
I just want you to know that in a few years, life will look a little different. However, in a decade, things will look significantly different. You’ll have new friends and family you don’t have today and you’ll also be without a few friends and family members you do have today. You have no control over that.
You have the ability to create more options for yourself and be well on your way to being a millionaire. You just need to start saving as much money as you can. Don’t wait, start saving now. I want you to save in a few different places too.
I want you to keep it simple and easy.
I want you to set everything up to happen automatically.
Then enjoy life today and coast to financial freedom.
Life will never be as carefree, simple, and fun as it is now. You don’t need to stress too much about saving for the future, but you can’t ignore it either. Trust me, you will regret not getting started now. Actually, failing to save enough will play a part in almost every regret you have from here on out.
If you fail to save enough money for the future, you’ll end up feeling trapped in the Army. You’ll reenlist multiple times even though the Army continues to treat you poorly, hand you big messes, make you feel underappreciated, promote people who don’t deserve it ahead of you, and frustrate you beyond belief.
Don’t Become What You Hate
Eventually, you’ll become that disgruntled senior NCO you swore you’d never be. Why? Because you never felt financially stable enough to actually pull the trigger and leave the Army. You’ll fail to demonstrate to your wife that you can provide for your family outside the Army. You’ll also never fully commit to the Army either because you’ll always be looking for a way out.
Eventually, you’ll try blaming everyone but yourself for the way you feel. It’s not them. It’s just the path you ended up on because you didn’t take deliberate action to move a different direction.
You can prevent all this if you act now! You don’t have to end up somewhere you don’t want to be in life – feeling trapped and frustrated. All you need to do is start. Now!
Saving in Three Main Areas
Initially, I want you to start saving in three places:
- Retirement
- FU Money
- General Savings
These are the general categories where you should be directing your money. Later on, you can make things more complicated as you see fit, but for now, I just want you to get started with these.
Retirement Savings
For your retirement funds, you can use your Thrift Savings Plan (TSP) through the Army. I want you to start investing 15% in your TSP starting now. I know this seems like a huge amount, but I promise you will figure out how to live on 85% of your pay.
There’s two steps you need to complete here though – set the monthly percentage, and set where it’s invested.
Set the Percentage in MyPay
To set the monthly allotment going to the TSP each month, log into MyPay. Once you’re in there, you’ll need to change the TSP withholding percentage. You’ll have two options: Traditional and Roth. You want to set everything to 15% for the Roth TSP option.
Unless you come up with a good reason to change it to the traditional you should be investing in the Roth TSP by default. We can get into that later, but it’s really not important right now. Just remember – Roth is for retirement.
Invest Inside the Thrift Saving Plan
The second part of this is to actually see where your money is invested. MyPay tells DFAS (Defense Finance Accounting Service) to send the money to the TSP. The next step is for the money to be invested within the TSP.
Log into your TSP account at www.tsp.gov to change how your money is invested. You’ll have to create a login the first time, but it’s a fairly simple process. Once you have your login, you should be able to see your account overview screen. Click on the investments tab at the top. It will show you where you where everything is invested and what the current returns are for each fund.
If you’re happy with where it’s invested, no need to change anything. By default, you should be invested in the Lifecycle Fund closest to your full retirement age. If so, you can leave it be for now.
Changing Your Current Investments
If not, select the Change Investments button. Alternatively, you can go to the top of the page, hit More and then select: Change Investments -> Move Money Between Funds.
Once you’re in the Move Money screen, you need to select the percentage of everything you have invested you want to change. Then hit continue. On the next screen, you’ll select how much money you want invested in which funds by percentage.
Change Future Contributions to Match
After that, you’ll want to make sure your contributions are going there too. Go to Change Investments -> Change Your Investment Contributions -> Get Started -> Only money that will be contributed in the future. Then on that screen you can select the percentage you want in each fund and set it accordingly.
Eventually, we’ll talk more about what the different funds are. No need to worry right now. Just know that you’re putting money into a relatively safe place that will take your money and make it grow over time – even while you sleep.
Save Money for Getting Out – “FU Money”
If you stopped here, you’d be in a much better place later on. However, we need to make sure you’ve got money set aside for when you eventually get out of the military. We also still want to get some savings started “just because.”
Your “Get Out” fund is just that, a pot of money set aside so you can create your own safety net for when you leave service. Ideally, you’ll never actually need this money, but it will be there anyway. Another way to think about this is to call it your “FU Money” (read my article and listen to the podcast episode on that here). When it comes time to reenlist (or not) you can raise your right hand…or your middle finger and walk away.
We’re not going to use this money for anything until you exit service or become financially independent. We’re going to pretend it doesn’t exist until you need it as you exit service or start your retirement.
Set Up a Brokerage Account
You’ll need to set up a brokerage account. I suggest one of the “Big 3” like Vanguard, Schwab, or Fidelity. I personally use Vanguard and Schwab both without any issues.
Basically, you’ll create a log in and open a taxable brokerage account. Don’t worry about the “taxable” part of the name. If you do it correctly, you’ll pay very little in taxes coming from this account. Maybe none.
Once again, we’ll get to all the “functions” of how the tax works and all that later. Just set it up and get started. Once you get the account established, you’ll need to start sending money to it.
You can do this a couple different ways. You can either set up an allotment through MyPay or you can set up an automatic withdrawal from your main checking account. I’d use an allotment so you never get your hands on that money.
Once you have everything set up, you’ll need to make sure the money gets invested. Starting to see a pattern here? Deposit money, invest the money. If you fail to purchase investment products with the money, it will sit there and never earn any money for you – not good.
Depending on your circumstances, I’d say you should aim to have 6 months of total pay in this account by the time your enlistment is over. In other words, if your total pay (including BAS, BAH, etc.) is $2,000, you should aim to have $12,000 saved into this account before you start ETS leave.
You don’t have to save this all at once. If you start right now, you can save $250/month and have more than $13,500 in 4 years.
Future Value Calculator
I know this sounds totally unrealistic to save that kind of money each month on top of what you’re already saving. If you can only throw $50 a month, get started with that. You can then commit to adding to that amount each time you get a raise.
I want you to invest this money in a low-cost exchange traded fund (ETF). Once again, you don’t need to worry about what that is right now. Just know that it will grow in a way that’s going to be simple and be taxed at a better rate (if you leave everything invested long-term).
I personally use what’s called a “total stock market” or “broad market” ETF for all my “extra” investing. These essentially mimic the overall stock market. Once again, it’s not super important to know all the details right now. Just open the account and start investing. Just make sure the expense ratio is low (under 0.10%).
General Savings Just Because
Finally, the last mandatory saving you need to have is the “just because” money or general savings. This is savings for whatever you may need in the future. I suggest you open a savings account specifically for this and nickname it so you know not to touch it.
Don’t worry about the interest rates on this. You’re not going to be making a bunch of money in interest from here. You just need this money to be available when you need it. It can add to your “FU Money” you have invested. If it makes you feel better, go to an online search tool to find a high yield savings account. Just don’t dwell on this.
Once again, make sure this comes out automatically. Allotment or automatic savings rules can both work. Just make sure it comes out before you have a chance to spend it.
As for the amount, just match this to how much you’re saving into your transition fund. If you start that with $50/month, start putting $50/month in here too. You’ll want to start increasing these amounts over time as well.
It’s okay if you start these last two saving areas small for now. You legit don’t make a lot right now, so it might be hard to save a ton of money. I get it. I just want you to get started with something right now. You won’t regret it.
Continue Saving More Over Time
From here on out, every time you get a raise, add more to your savings. You an split each raise four ways. A quarter goes to you to spend and live off of, and then the rest gets split between your other savings we just talked about.
Split Your Raises
Each raise, bump your TSP up by 1% and then split the other money up in savings for your transition fund and your savings. So if you’re an E-4 and get a 4.6% raise, add an additional 1% to your TSP, and then 1.2% to your other savings, and then the remainder is yours to use for other things.
If you’ll do this, even if you start at only a 5% savings rate on your TSP, by the time you hit 4 years in, you’ll be saving 10% or more in your TSP depending on how many times you get promoted. Your other savings will increase too.
Before you know it, you’ll have a lot more money and confidence. You’ll be coming up to the end of your first enlistment with money in the bank because of your smart saving habits. If not, you’ll spend everything, continue to rack up debt, and have nothing to show for all your hard work and heartache you’ve experienced in your first years in the military.
End State Savings
By now, you’re probably wondering when you ever get to stop saving more and more. This kind of depends on your income later on, but I’d say a good goal to shoot for is maxing your TSP each year and having a total savings rate of about 50%.
I know this seems crazy right now, but you’ll make these small changes over time. You’re going to start small and gradually build up your savings rate. Eventually you’ll hit a point where you have all the money you need to live off of for the rest of your life – financial freedom and independence.
What About Debt?
Don’t get into debt! If you’ve already got debt you need to tackle, don’t stress about it. You just need to modify these savings goals slightly. I still recommend saving up at a minimal amount. If you’re needing to dig out from under debt, there are plenty of ways to get started paying off debt.
We’ll cover paying off debt in a later article, but if you need some help now, we used Dave Ramsey’s Total Money Makeover. We’ll share our journey of becoming debt free and lay out a couple different strategies that you can use to get out of debt as well.
Spend Less than You Make
This is simple to say, hard to do. There’s going to be so much you want to do in the near future, but you need to strike a balance between today and tomorrow. The more money you save now, the more options you’ll have later on.
The saying goes that money turns emergencies into minor inconveniences. Life is going to throw problems at you. Do you want to tackle those problems with more money or less?
That’s what I thought. Nobody was sad they had extra money laying around when something happened.
Don’t Forget to Have Fun!
I know all this saving seems too serious. It is serious, but it’s okay to have some fun. At the end of the day, it’s true that you can’t take it with you when you’re gone. However, some people, hopefully you too, will need to save up to make sure they have cash on hand for a long, long time.
You’re resourceful, creative, and hard working. You’ll figure out ways to entertain yourself and also get yourself promoted. You can work on a side hustle too if you need some money to play around.
Just take your time, buy everything in cash, and enjoy your youth. It passes by quickly.
Keep Learning and Growing
Oh, and don’t ever stop learning and growing. The more you can educate yourself, build skills, and make lasting connections with others, the better. You never know what life is going to throw at you, so keep building options.
I know this sounds weird coming from me, but I’m proud of you. You’ve already grown and learned so much. You’re going to wake up one day and think back to who you used to be and not even recognize that old version of you – in a good way. You’re going to grow exponentially as a Soldier, a leader, a husband, and a father. Seriously, you can’t see the path now, but life has a lot in store for you.
Use every resource the military gives you. I promise you’ll earn all those benefits 10 times over. The Army is going to get everything it can out of you, so you do the same.
Keep saving, keep learning, and love like there’s no tomorrow.
– Enlisted Money Guy