Becoming a Military Millionaire is Simple
Yes, it is.
Simple, but not necessarily easy.
It isn’t hard to save money, invest it in a boring index fund, and let compound interest work its magic…except this is slow, not exciting, and requires discipline.
Luckily service members have an innate amount of discipline!
If you can follow these ten steps (and avoid the three pitfalls below) you can become a military millionaire before retirement as well!
1. Expense Creep
Expense creep is a silent killer.
We tend to increase our spending habits a little bit with every pay raise, it is human nature.
Don’t do this!
Resist the urge, and save at least half of every pay raise you receive. In the military, you will receive a pay raise with every promotion as well as every other year (every year for your first 4)!
It will be tempting to increase your spending with each pay raise, but you must check that impulse.
If you want to treat yourself to a one-time expense that is perfectly acceptable but don’t buy something that will increase your monthly spending (like a membership, monthly service, or financing a new car).
This is important because you want to be able to save as much of your income as possible in order to invest it.
If you increase your expenses with every pay raise you will be adding years to your military millionaire timeline.
An easy way to keep these expenses from creeping is to shop on base as much as possible. Gas on base is usually the cheapest you will find in the area, and the commissary is (almost) always cheaper than anything off base.
The commissary is so cheap because they are required to sell everything at cost!
Don’t forget, everything on base is tax-free …depending on state taxes this could save you a fortune!
The bottom line is this; with personal finances, income is seldom the problem…expenses are!
2. Pay yourself first
Repeat after me, “I will always pay myself first!”
Okay, good…now let me tell you what that means.
Paying yourself first is the best way to ensure you save/invest every month.
Imagine this, you receive your paycheck on the first of the month. You pay your mortgage and utilities, buy gas, purchase your groceries for the next two weeks, spoil the kids a little bit, and spend a night out on the town. On the 14th of the month, you decide to save everything that is left from your first paycheck…only to discover you don’t have anything left.
This unfortunate scenario is a reality for entirely too many people!
According to CNBC, 78 percent of government employees live paycheck to paycheck…
Now, let’s imagine a better scenario.
You receive your paycheck on the first of the month. You have an automatic allotment set up that puts $500/paycheck into an account for saving/investing (that you do NOT touch). This will force you to adhere to a budget in order to cover your expenses for the month.
At the end of the year, you will have saved $12,000.
Let me curb your worries, complaints, and fears about this concept. The beautiful thing about paying yourself first is that you will find a way to pay for mandatory expenses, but you will have already budgeted for saving/investing.
In the first scenario, you would be tempted to spend this $500/paycheck because it is available…and thus hurting your financial future.
I know it is bad to speak in absolutes (they say the gods love to toy with people who use absolutes) but you should ALWAYS pay yourself first.
Stop what you’re doing right now and set up an allotment to pay yourself first.
…seriously, stop and go do that right now!
3. Increase your income
This is the part everybody likes to talk about, making more money!
There are so many ways to increase your income in the military, but here are a few of my favorites!
First, make sure you have taken advantage of any opportunities for promotion. If you’re close to promotion, but need to finish some online training in order to be eligible…finish it.
It baffles me that people miss out on opportunities to get promoted in the military because they’re too lazy to finish a couple of classes.
If you’re eligible to take (and think you’ll pass) the language exam(s), do so. This is free money for bilingual service members.
After you’ve exhausted all means to increase your income from the military perhaps it is time to look towards a side hustle.
Side hustles come in many shapes and sizes.
I have known Marines that worked as a bouncer for local night clubs on the weekend, and Marines that worked as security guards on the weekend.
The more common side hustles I see nowadays though are things like driving for Dominoes, Uber, Lyft, Bite Squad, Uber Eats, or any number of delivery services.
I like these ideas because the hours are flexible, and (bonus) you can listen to audiobooks and podcasts while doing it.
Learning while working is a huge life-hack if you can take advantage of it!
Another option is to start a small business, if you’re reading this (which you are), it is because of one of my side hustles!
4. Invest in yourself
I alluded to this above, but the ability to learn while you work is a force multiplier in life!
I like to have a 15 or 20-minute commute to work in order to listen to audiobooks on my commute.
As I mentioned, listening to podcasts/audiobooks was a bonus for delivery side hustles, but imagine if the military would pay you to invest in yourself…
Newsflash, they do!
Not only does the military pay you to go to basic and advanced schooling for your job, but they require you to attend professional military education (PME) and leadership schools as you progress through the rank structure.
In addition to this, the local education center has monthly financial classes you can attend. They offer classes about budgeting, investing basics, understanding the Thrift Savings Plan (TSP), etc.
Take advantage of these classes as much as possible. The military is literally paying you to gain a financial education!
Also, every command has a command financial specialist (may have a different name depending on your branch of service). Their job is to talk finance and answer your questions.
I recommend that you pick their brain, but a word of warning, some of them got voluntold for the position and aren’t really good with finances, so vet them as much as possible.
5. Make Taxes your [email protected]
I love this one!
Did you know that only about 40% of your income is taxed in the military?
Realistically this number will depend on where you are stationed, but your base pay is about the only thing that gets taxed.
When you look at your leave and earnings statement, everything that has “allowance” in the title does not get taxed.
That’s right, your basic allowance for housing (BAH), cost of living allowance (COLA), basic allowance for sustenance (BAS), etc.…all tax-free.
That means you are already in one of the lowest tax brackets possible, for the amount of money you receive.
Now, there are ways to pay even less in taxes.
One of the easiest is the 401k account in your TSP. The 401k allows you to defer taxes until withdrawal. Yes, this means you will need to pay taxes on the money when you withdraw it in retirement, but it means you don’t pay taxes on it now.
Currently, the maximum amount you can contribute to your TSP annually is $19,000.
Let’s say your base pay is $40,000 annually. If you contribute $10,000 to your 401k account you will only pay taxes on $30,000 of your annual salary!
You could realistically max out your TSP, and live on your allowances in order to mitigate the amount you pay in taxes!
*It can be argued that perhaps investing in the ROTH 401k is more beneficial for military members. You will now pay taxes immediately (while most of your income isn’t taxed) in order to avoid paying taxes upon withdrawal. This is a decision you need to make!
Real estate investing is another great way to minimize the amount you pay in taxes!
6. Make your money work for you
Investing is another force multiplier that will help you build wealth much faster.
For this reason, it is important to understand the basics of allowing your money to go to work for you.
Putting your money to work should be an ongoing evolution. Once you understand the basics of investing, it can be simple to automate!
The three strategies below are some of my favorites, but there are many ways to invest.
*warning* All investing involves (at least some) risk. Make sure you have a firm understanding of whatever platform(s) you choose to invest with. Don’t invest just because you know somebody who made money doing that…do your own research first!
a. Thrift Savings Plan
As I just discussed, the Thrift Savings Plan is a great way to ace your tax-game!
However, that wouldn’t be worth it if it was a terrible investment.
For that reason, I want to discuss a few reasons the TSP is such a great vessel for you to invest.
It is automated.
Yes, this meets the criteria of paying yourself first. If you increase your allotment with every pay raise it will also help you avoid expense creep!
It has low fees.
The TSP has some of the lowest fees available to index funds. The fees average around 0.040%. That means for every $100,000 you have in your TSP the annual fees average…are you ready for this…forty dollars.
I don’t know about you, but I can afford to have somebody professionally manage my money for $40 per every $100,000 I invest. That is a steal!
Most index funds on the market have fees that are at least double this.
There are a few funds that have recently lowered their fees, but it is yet to be determined whether they will be able to maintain this, and/or if their fund will have a competitive performance with the TSP.
The bottom line is that the TSP is one of the best options out there, and you need to take advantage of it.
Another advantage is that individual 401k accounts are only authorized a $6,000 annual contribution. Contrast that with the $19,000 authorized for TSP ($56,000 annually if you’re in a combat zone)!
The TSP is great because you can set an allotment and let compound interest work for you!
This option is even better now that the new blended retirement system (BRS) allows the military to match up to 5% of your paycheck in monthly contributions!
Read this article for more information on TSP investing
b. Index Funds
According to Investopedia, An index fund is a type of mutual fund with a portfolio constructed to match or track the components of a financial market index, such as the Standard & Poor’s 500 Index (S&P 500). An index mutual fund is said to provide broad market exposure, low operating expenses and low portfolio turnover.
But what does that technical mumbo-jumbo definition mean?!??
It means that an index fund is a lot of stocks lumped together, with minimal trades conducted.
This is a slow, boring way to invest…and that is why it works!
I’m a fan of the Vanguard VTSAX fund, which owns stock(s) from EVERY publicly traded company in the United States.
That means if you bet against VTSAX you are betting against the entire nations’ economy!
I don’t know about you, but I believe that companies generally want their business to blossom and grow. For this reason, I have faith in total stock market index funds…because you’re riding the coattails of every successful company!
Index funds are the bread and butter of The Simple Path to Wealth by JL Collins.
The strategy you want to employ with index funds is to pick one or two that you like, set up a monthly allotment to that fund, and then don’t look at it more than once a quarter (the less the better).
I only look at mine twice a year, and that is to readjust allotment depending on which fund I want to put a little more into for the next few months.
Don’t stop contributing to this fund no matter what the market does, and don’t pull your money out. I know this is easier said than done when the market is trending downward, but you can’t let emotions get the better of you.
By investing when the market has plummeted you are buying more shares for each dollar you contribute. When the share price rises again (and it will) you now have even MORE money in the fund than before!
This is called dollar cost averaging, and it works like magic over the long haul!
c. Rental Properties
In case you’re new to the website, this is my favorite.
I absolutely love real estate investing, and a large portion of my articles are written about this topic.
There are so many great reasons to invest in real estate, cash flow, appreciation, depreciation (tax write-offs), and debt pay-down are just a few of these.
I love the idea that I can buy a property, and my tenants will pay off my mortgage, while simultaneously paying me to do so!
As a future military millionaire, there are some great benefits afforded to you.
My favorite of these is the VA home loan!
The VA loan allows you to purchase a 1-4-unit home for ZERO money out of pocket!
That’s right, you can buy your first home without paying a penny.
I recommend that your house hack this first property. House hacking is when you buy a duplex, triplex, or four-plex and live in one unit while renting the others out. These tenants will pay your mortgage, and you can live for free…maybe even get paid to live there!
Not paying for housing is a huge benefit and I recommend that you save/invest every penny that you would have been paying to live there.
When you move out of the property you will make even more cash flow, and be able to re-invest that money again.
Rental properties are a great way to build wealth, but be sure to buy the home as an investment. Turning your home into an investment doesn’t always work if it wasn’t planned to be used that way at the time of purchase.
That is because nice primary residences often cost more to maintain than tenants are willing to pay for rent.
7. Marry Intelligently
This is a controversial point.
I am, however, a Marine…and we don’t shy away from controversial.
I have seen more lives destroyed by divorce than I care to mention. The problem is that people get married for the wrong reasons…love, lust, pregnancy, BAH (sad but true), and other emotional reasons.
Before you get super offended hear me out.
Firstly, let me explain that my parents work for an organization that travels the nation from conducting marriage conferences. I had a great example of marriage while growing up, and have seen a lot of the opposite in the military.
Having seen both sides, and talked to people on both sides of the fence, here are some keys to avoiding disaster.
It takes 18-24 months for the infatuation to wear off. Therefore, if you decide to get married in this time, you’re setting yourself up for potential failure. I would wager that anybody trying to rush you into marriage faster might not be the right person for you (if they are, they’ll still be the right person in 24 months).
Have “the talk.”
No, not that talk…you need to talk about finances.
Know how much debt you’re marrying. If you’re struggling financially, and your future spouse has $100,000 in student loans that they aren’t able to pay off, that is a problem.
If you’re trying to build wealth, but your significant other has a hole in their pocket that might end poorly.
Too many people rush into marriage, and then things fall apart for one reason or another.
Financial stress is the leading cause of divorce in America. Wouldn’t you want to know about their financial wellbeing BEFORE it is too late?
Bottom line is this, marry intelligently. Your partner needs to have similar goals and be on a similar path as you…otherwise it will be a rough journey.
8. Network with military millionaires
Future military millionaires surround themselves with millionaires.
A famous Jim Rohn quote says that “you are the average of the five people you spend the most time with.”
For this reason, you need to upgrade your network.
Am I saying to ditch all of your friends? Maybe. If your friends are holding you back in life, cut them off.
Stop spending time with negative people!
*Life-hack alert* If you notice a friend is constantly posting negative, or anger-inducing content on Facebook…unfollow them. Unfollowing them will hide any and all of that negative crap, but since you didn’t unfriend them it will go unnoticed!
Trust me, you’ll notice a huge difference when scrolling through social media.
In the same manner, you need to replace the negative Nancy with positive Paul…or the negative Nick with positive Pauline (this is an equal opportunity blog).
There are a few benefits to doing this.
One is that your life will be less stressful after limiting your time with negative people in your life.
Another is that by being around people that have already achieved the goals you want to achieve you will gain a wealth of experience. These people will help pull you up to their level of success, and you will notice massive growth taking place in your life!
I cannot stress this enough, networking is one of the most important items on this list!
Military Millionaires Avoid these Pitfalls!
It is just as important to avoid pitfalls as it is to follow the advice above.
These are three common mistakes that service members make, and news-flash…I made all three!
Please, learn from my mistakes
1. New Cars
Vehicles are probably the biggest mistake young service members make.
I have heard some unbelievable stories of what not to do.
I have seen a young service member agree to interest rates over 20% (once over 30%) in order to buy a vehicle.
That is insane!
I bought this Harley Davidson brand new, but at least I had a reasonable interest rate.
It was still a poor financial decision though. I spent thousands of dollars upgrading exhaust, engine, cosmetics, etc. Only to have it totaled a few years later and not get much of that money back.
I would like to tell you I learned my lesson there…but the 2001 Honda S2000 clearly shows otherwise.
I spent close to $6,000 in upgrading this car.
Now, I won’t tell you I regret either of these vehicles. They were both a ton of fun to own, and I absolutely loved that turbo-charged S2000!
…but I will tell you they were terrible financial decisions!
On both of these vehicles, I lost money when I sold them…not even including all of the modifications I put on them.
I literally lost thousands of dollars on these vehicles.
Contrast that with my last two vehicles and you will see why I call these mistakes.
Combined, I drove over 50,000 miles in my last two vehicles, and sold them for $3300 profit when I was done with them!
How did I manage this?
I bought right.
The strategy to avoid this
I recommend you buy a 5-6-year-old vehicle, from a private party that took great care of their vehicle but needs to sell fast.
This is generally pretty easy around military installations as service members will sell their vehicle at a discount when moving to a new duty station.
If you buy at a discount, and take care of the vehicle there is no reason you can’t recoup most of the purchase price if/when you sell the vehicle.
I just did this again!
I found a 2013 VW Jetta SportWagen TDI for $10,900.
This car has a current Kelly-blue-book value of $12,500-$13,300. That means I purchased it ~$2000 under market value, which gives me a huge buffer for when I sell it!
The kicker, it looks brand new, gets over 40MPG, and only has 23,300 miles on it!
*Disclaimer* I have four tattoos and like drinking beer.
I’m not going to preach to you about tattoos or alcohol, both of them have their place.
Just be smart about it!
Tattoos are fun, but rather than racing to cover your entire body, plan your designs and save for them over time.
This will help you avoid blowing your paycheck on tattoos and also help you avoid getting tattoos that you’ll regret later (when it is too late).
Alcohol is also fun, but it’s critical to drink in moderation.
Booze is not cheap, maybe you can get friends to buy your drinks…or simply drink less!
I will warn though; DUI’s are fairly common in the military.
This mistake will cost you thousands of dollars. The average cost of a DUI in Hawaii (where I’m currently stationed) is around $12,000!!!
Whatever you do, don’t make this mistake. It will leave you in financial ruin, and could potentially end your career too.
Talk about a double-whammy!
The bottom line with tattoos, alcohol, and partying is this…
Have fun, be safe, and don’t blow all of your money!
Military millionaires budget for these expenses!
3. Wasting time
Opportunity cost is like the financial sucking chest wound you’re unaware of.
Every dollar you choose to spend on an energy drink, tobacco, or taco bell is a dollar you don’t get to invest.
Over your lifetime that dollar could have become much more valuable!
The problem is that most of us don’t think about this until much later in life ☹
Time is the greatest advantage we have at a young age. If you’re receiving a 10% interest rate your money will double every 7 years. This means you could have doubled your invested capital at least once by the time most people are just starting to save/invest!
The best way to avoid this pitfall is simple…start investing immediately!
I’m not recommending you dump all of your money into a rental property tomorrow. You need to do your research, and know what you’re doing, before investing.
You can, however, increase your TSP contributions, and begin an investment savings account, immediately!
TL;DR Military Millionaire summary!
Becoming a military millionaire is simple.
Having the discipline to stick to the plan is not.
Now that you’ve completed reading through these strategies it is time to get busy!
Write out a plan, improve your budget, automate your savings/investing, and DO NOT STOP!
Don’t let time pass you by…the sooner you start investing, the faster you will become a military millionaire!