How to Create Financial Freedom in One Enlistment
This post is geared towards somebody’s first enlistment, but the information is applicable no matter where you are in the process. I wanted to create this short guide to achieving financial freedom in one enlistment because I think there are some simple, actionable steps you can take to build wealth in the military.
I wish I had known this when I first joined!
Thrift Savings Plan
The very first thing you should do is invest in the Thrift Savings Plan (TSP).
You should contribute 5% of your paycheck to the TSP no matter what!
With the new blended retirement system, if you contribute 5% of your paycheck into the TSP you will receive a 5% match from the government. That is an instant 100% return on your investment, and basically a 5% pay raise, so make sure you take advantage of it!
Personally, I recommend you contribute much more money to the TSP than this, especially when you first join the military. The closer you can get to max out your contributions ($19,500/year at this time) the better off you’ll be. Compound interest is magical, and the more you can contribute at an early age, the better!
For most young service members you should probably contribute to the ROTH TSP, as opposed to the Traditional TSP, but that is a personal preference. The main difference is that with traditional you pay taxes later, and with ROTH you pay taxes now. Personally, I would rather pay the taxes now, because there is a good chance that you’ll be in a higher tax bracket during retirement if you play your cards right.
There are a few reasons the TSP is where you need to start:
- It is completely automated and takes literally zero effort or mental energy once you’re setup.
- It is a low-fee, tax-advantaged retirement account, that will compound and grow forever.
- Because of the above bullet, you can set up your retirement account at an early age, which means you can afford to take some decent risks in life.
- Your TSP balance counts toward “cash reserves” for your lender when you’re buying real estate.
- You can take a TSP loan, or liquidate your TSP if an emergency arrives in life, and you absolutely have to use the money, although I don’t recommend doing this unless you have to.
Track Your Spending
The simple act of tracking where your money goes will allow you to make better financial decisions and slash expenses.
If you don’t know where your money is going, you’ll never be able to keep it from going there.
You will probably be surprised by how much of your money is going toward groceries, eating out, or aimless spending. For that reason, if you can start tracking your spending, you’ll be able to curb the unplanned expenses and save more money to invest.
You don’t need to do this with some crazy spreadsheet like you used to. Your bank most likely has a way to show you what categories your money is going to, or there are several budgeting apps out there you can use.
I actually hate tracking my spending, so I use a different approach to budgeting, but I know my numbers and don’t exceed them.
Increase Your Savings Gap
Your Savings gap is the amount between your income and expenses. Let us say that you earn $5,000/month, and spend $4,500/month, your savings gap is $500/month or 10% of your income.
The fastest way to achieve financial freedom is to increase your savings gap and invest that money.
My friend Doug Nordman wrote a pretty-detailed article about how long it will take you to achieve financial freedom based on the amount of money you save.
There are two ways to increase your savings gap. You can either a) slash your expenses, or b) increase your income. Personally, I think slashing your expenses is the place to start. There are several ways to increase your income, but if you don’t have your expenses under control, you risk eating away at the extra income as well.
The bottom line is this, the more money you save, and invest, the faster you’ll achieve financial freedom. It is as simple as that.
VA Loan House Hack
The VA loan is an incredibly powerful loan product available to veterans.
House hacking is my favorite real estate investing strategy for new investors.
The VA loan house hack is without a doubt, one of the most powerful wealth-builders in your repertoire as a military real estate investor.
The basic premise here is that you can buy a 2-4 unit home with the VA loan (for $0 down) and then live in one unit while you rent the remaining unit(s) out to cover your living expenses.
This is an incredible strategy to get you into the real estate investing world affordably and learn how to be a landlord while saving a ton of money that you would have been spending on your housing expenses.
Not only are your tenants helping you pay off your mortgage, but you’re also slashing your living expenses (raising your savings rate) to reinvest that money to make more money!
VA Loan House Hack (again)
Assuming you did this properly, you’ll most certainly be convinced of how powerful it is.
When you get orders, rent your first house hack out, and purchase another one to do this again. Now you’ll have anywhere from 4-8 units, and all but one of them are rented, paying down your expenses.
If you buy these properties in such a way that they cash flow consistently, you’ll be able to hold them through market cycles, even when the value of homes drops.
Depending on how much of your entitlement you used on the first house hack, what market you are moving to next, and a few other variables you might be able to use the VA loan again for this next home.
If you would like more details on this, geared toward your specific situation, please fill out this short form, and we will connect you with one of our recommended VA lenders, or agents, to ensure you’re taken care of!
Even if that is not the case, you should have a solid chunk of money saved that you can use as a down payment with an FHA loan, or 5% down conventional loan, on your next home! You will also be able to use 75% of the gross rental income from your first house hack toward your debt-to-income ratio or the second property!
It Really Is This Simple to Create Financial Freedom in One Enlistment
Definitely check out my book The No B.S. Guide to Military Life: how to Build Wealth, Get Promoted, and Achieve Greatness for more information about achieving financial freedom while serving in the military!
There are so many opportunities for service members to build wealth, but I prefer to keep things simple.
You shouldn’t have to eat Ramen noodles for four years to achieve financial freedom. You should absolutely be able to enjoy your life in the process!