What’s up Military Millionaires? Today I want to teach you how you can get rich in the military by following these 7 simple military finance steps!
Too many people in the military buy into the old complaint that “we don’t get paid enough.” That simply isn’t true. If you are smart with your money in the military, you can absolutely build wealth while serving.
Find me another job with the number of benefits we have, where you are only going to get taxed on one-third to one-half of your income. Seriously, I’m waiting! My W-2 income is around $45,000, but I would need to earn over $110,000 to live the exact same lifestyle I do right now (not including the tax difference).
As an Arkansas resident, here is the difference if we factor taxes into the mix.
Income Taxes owed Post-tax = income Including the value of non-taxed benefits
$45,000 $9,209 $35,791 = $100,791
$134,000 $33,500 $100,500 = $100,500
I don’t want to overcomplicate this math by showing wild numbers, but according to my calculations, I would need to earn around $134,000 in pre-tax dollars in order to live the exact same lifestyle I do right now in post-tax dollars.
That is a very substantial amount of money and a huge portion of our paycheck that isn’t taxed, and we need to take full advantage!
Without further delay, let’s dig into how you can get rich in the military by following these 7 simple steps!
Thrift Savings Plan
You get to set up the Thrift Savings Plan (TSP) while in recruit training. That is why this is the first step if you want to build wealth through military finance.
The TSP is a very simple, automated way to build wealth. Here are the few things you need to do in order to successfully invest with the Thrift Savings Plan:
- Immediately set up a contribution of at least 10% of your paycheck.
- Decide whether you wish to contribute to the traditional or Roth TSP.
- If you believe you will be in a higher tax bracket in retirement, I recommend Roth TSP.
- If you believe you’ll be in a lower tax bracket, I recommend traditional TSP.
- Do your homework—there are pros/cons to each fund.
- Decide which fund(s) you want to invest in and ensure your contributions are set up accordingly.
- If you don’t want to take time to research the various funds, contribute to the Lifecycle fund that coincides with the year you plan to retire.
- If you are savvy with the various funds, choose what percentage of your contribution you wish to contribute to each fund.
- You need to understand that every dollar you contribute at age 18 is worth 2-3 dollars contributed at age 30.
- You should contribute as much as comfortably possible from the beginning.
- Increase your contribution every time you get a pay raise.
How I View My TSP
I view my Thrift Savings Plan as my super-duper emergency fund. While it continues to grow and I am currently contributing over a third of my paycheck into my TSP, I view it as a diversification from my real estate portfolio. I love this part of military finance.
I like knowing that in a worst-case scenario I can withdraw money from my TSP in order to cover my rental property expenses.
That being said, I don’t ever plan to take the money out of my TSP, unless I roll it into an SDIRA or use another advanced TSP strategy later on!
Pay Yourself First
I could go on and on about this concept and how important it is, but the bottom line is this: every paycheck, you need to set aside a certain amount of money for yourself before you pay your bills.
If you pay your bills and spend your money with the intent of investing the difference, you’ll never have any money left over to invest. For that reason, you need to set money aside in these three accounts before you spend money dining out or buying a new pair of Jordan’s.
I have heard people recommend keeping 6-12 months’ worth of monthly expenses set aside in an emergency fund. While this cushion will give you a nice buffer, I don’t know if you need that big of an emergency fund while active duty. I generally figure that $10,000 is a good number to put in your emergency fund. Do not touch this fund for anything but emergencies. Don’t spend it. This is your “oh shit” fund! I recommend you keep this money in a high-yield savings account.
You can continue contributing to it after you reach this amount, but you could also take that extra money and put it into your investment account to build wealth even faster!
This account can be a high-yield savings account or even an index fund or similar account if you’re okay with the risk associated with ups and downs in the market while you contribute to it. This is the account where you save money to invest in your next rental property, business venture, stock, or whatever other investment you fancy.
You should be contributing at least 10% of your paycheck to this account if you want to build wealth quickly.
As a side note, you could consider your contributions to the TSP as this 10%, but I recommend you set aside an additional 10% outside of your TSP to invest in other assets.
Budgeting is like dieting. If you are too strict, you’ll cave and end up way off track. You need to set some money aside in a “play money” account as well. This is the money you use to eat at a fancy restaurant, buy those new Jordan’s, or blow on whatever else you desire.
This is the money you spend without a care in the world to enjoy your life. Add this account into your budget and it will make the rest of your frugality easier to stomach.
Avoid Expense Creep
When people get a pay raise, their natural response is to slowly grow into those expenses. For example, say you were making $1000/month and you got a 10% raise ($1100/month). If you turned around and added $100/month in spending, then you effectively erased that pay raise.
I’m all for celebrating, throwing a party, whatever…but don’t let your normal expenses creep up on you.
Used Car > New Car
Buying a new car is one of the worst things you can do to your finances. You’re literally paying interest on a vehicle that will drop 40-60% in value over the next five years. You might as well light your money on fire. You owe it to yourself to understand how to purchase a solid used car and stay within an affordable monthly payment.
Save Income from Promotions
I love the idea of increasing your Thrift Savings Plan contribution with every pay raise. You don’t have to put the entire pay raise into your TSP, but a 1-2% increase with every pay raise will go a long way over the course of your time in the military.
If you don’t increase your contribution to the TSP, you should definitely increase the amount of money you put into your other investment account.
The ability to live on the same amount of income while increasing the amount of money you invest with each paycheck will ensure you build wealth very quickly!
House Hack – VA Loan House Hacking
If you’ve been around this community for long, you may have heard me talking about house hacking a time or two…or more. House hacking is my single favorite real estate investing strategy for beginners because it allows you to purchase a home with no (or low) money down, learn how to be a landlord, and cut your living expenses.
Buying a home to live in isn’t as “scary” as buying an investment property, so it is much easier to convince yourself to jump in! Learning how to landlord is invaluable, although you can still choose to use a property manager if you would like. Finally, slashing your living expenses to almost nothing, if not less, will allow you to build your investment capital faster.
House hacking can absolutely skyrocket your net worth, and I recommend learning about it for sure.
This is even more powerful for service members and veterans who can use the VA loan to buy a home without a penny out of pocket.
Take my friend Brian, for example, who bought a $1.2 million 4-plex. He received $600 back at closing and currently, cash flows a few hundred bucks a month while getting to live for free!
There are a ton of tax advantages for real estate investors too!
Side Hustles (after your expenses are in check)
There are a lot of service members who work additional side hustles. You could drive for Uber or InstaCart, work as a bouncer at a nightclub, be a real estate agent, or many other things. The key is to ensure that your command is on board and that your side hustle doesn’t interfere with your military career.
Take a look at this article to learn the full ins-and-outs of common side hustles for service members.
In Japan, they have a set of Kanji symbols that illustrate the word “Kaizen.” Kaizen is a concept referring to business activities that continuously improve all functions and involve all employees. In short, Kaizen = continuous improvement.
This is a concept you should embrace. Whether you are reading non-fiction books, taking college classes, working out, listening to podcasts, or studying YouTube, you owe it to yourself to be continuously improving.
Lou Holtz said, “In this world, you’re either growing or you’re dying, so get in motion and grow.” The meaning is simple: you need to strive to learn something new every day. If you consistently learn new things, you will be amazed at how much you grow over the course of a year!
Networking To Get Rich in the Military
Networking is one of the most useful skills you can learn. The better you get at meeting people, building relationships, and connecting people, the more successful you will become. There are a lot of quotes about how important it is to understand networking, but no concept is more valuable than understanding that you need to surround yourself with people who have already achieved what you want to achieve yourself.
The more you fill your network with people who have similar goals to yours or who have achieved what you want to achieve, the better off you’ll be in life.
Networking is an art, and you should take some time to learn the ins-and-outs of networking in order to build your personal network.
Play the Long Game To Get Rich in the Military
More often than not, when forced to choose between instant gratification and delayed gratification, delayed is the choice you want to make.
Think about it.
Sugar and sweets give you instant gratification, but the long-term effects are dangerous.
Running doesn’t necessarily suck, but I wouldn’t (always) call it instant gratification…however the long-term effects are extremely beneficial.
There are so many examples of this in life, and I recommend that you start to shift your thinking toward planning for the long-term.
Sure, it might be more fun right now to blow your entire paycheck partying than it is to contribute to your TSP or save a lot of your paycheck for investing. However, 10, 20, 40-years down the road, it will be a lot more fun to have amassed a lot of wealth and cash-flowing assets than it will be to remember the parties you used to throw…but now you’re broke.
Never stop learning, investing, and improving yourself, and always play the long game. You would be amazed how much of a headstart you’ll have on life if you understand how to use military finance in your favor!
You are awesome! Now get out there and get rich in the military!