Take Advantage of the Three Pillars of Military Retirement: Traditional TSP, Roth TSP, and Pension

Grow and Thrive - Beginning Phase 3

In Phase 1 on your path to financial independence, it was crisis mode - stop hemorrhaging money now!  Moving on to Phase 2, the goal was to stabilize the situation - set a strong foundation for future growth. Now, in Phase 3, we’ve built that foundation, and the focus now becomes truly building your wealth - not just to survive, but to truly thrive.  Specifically, now that you've 1) paid off your consumer loan and credit card debt; and, 2) established a healthy emergency fund, we'll reallocate your Excess Income to support this growth.

BUT, this is no get-rich-quick scheme.  Rather, as you move forward and embrace this plan, you will slowly - but surely - reach financial independence.  And that’s what it’s all about, not the money itself, but the freedom that money provides you to pursue your purpose.  When you have doubts or frustrations - and we all do - find inspiration in that reason you initially set for deciding to take control of your financial life.

Congratulations on reaching this point!

Allocate and Automate Your Excess Income

Time + Money: Dollars Add Up!

What to Do with Excess Income

In the last post, we outlined, experimented with, and confirmed a budget that left a certain amount of money - your Excess Income - untouched every month.  Now, we’ll figure out what to do with that money as you continue to stabilize your financial health.

Automate Your Saving with Online Banking

As brilliant investor Warren Buffett declared: “Do not save what is left after spending; instead spend what is left after saving.”  The best way to follow this outstanding advice is to automate your saving.  Specifically, you can set up your checking account so that whenever your direct deposit pay is put into the bank, the Excess Income portion of that money is immediately and automatically transferred to savings and paying down debt.  USAA, NFCU, and all other major banks now have great online banking, and setting up automatic A) payments for credit card bills and loans, and B) transfers to savings takes only a couple clicks from the comfort of home.

Track Your Spending and Implement a Budget

You Stopped the Bleeding - What’s Next?

Ok, so if you’ve knocked out all the steps in Phase 1 of the MilitaryMoney.US Path to Financial Independence, you’ve successfully stopped the bleeding.  This is only the beginning! As with tactical combat casualty care, stopping the bleeding is a critical first step, but you need to stabilize next, and that’s exactly what we’re going to do in Phase 2.  

Don't Take Out New Consumer Loans

What’s a Consumer Loan?

First thing’s first, it’s a type of personal loan (as opposed to a commercial or business loan).  So, it’s cash you’re borrowing from a bank, credit card company as an advance, or less reputable lender (e.g. a pawnshop) to do or buy something. Broadly speaking, the “something” people take out these loans for falls into one of three categories: personal (buying stuff like clothes or a car; paying for medical expenses), family (vacation; tuition expenses), or household (buying appliances; repairing an air conditioner; etc).  So what type of loan isn’t a consumer one?  For our purposes, mortgages, or loans secured by and used to buy a house, are not consumer loans, but more on those in the real estate section.

Yes, 35.99% Is an Insanely High Interest Rate!

Start an Emergency Fund

What’s an Emergency Fund?

If you Google “emergency fund,” more than a half billion results pop up (a number sure to increase every day).  So, I want to clarify the definition. Vanguard offers a good starting point: “An emergency fund is a stash of money set aside to cover the financial surprises life throws your way.”  Bottom line, this is money that, in the event of some sort of financial emergency, will let you pay the bill without resorting to A) credit card debt, or B) a personal loan.

Free Money: Enroll in the Thrift Savings Program (TSP)

***Disclaimer: In the below article, I’ve attempted to simplify some of the confusing language used to explain the TSP in official paperwork.  As such, I do not go into full detail on some of the more intricate aspects of this retirement program and its tax treatment, so here’s a great resource if you’d like to take a full deep dive.***

What is the Thrift Savings Program (TSP)?

If you’ve ever listened to a command financial brief or listened to other service members talk about the pros and cons of the Blended Retirement System (more on that later), you’ve probably heard the term Thrift Savings Program - or TSP, more likely - thrown around.  Simply put, the TSP is “a retirement savings and investment plan for Federal employees and members of the uniformed services.” If you’ve heard friends in the civilian world talking about the 401(k) retirement plans offered by their employers, the TSP offers similar savings and tax benefits to these plans.

Credit Card Debt? Stop Spending!

So You’ve Defined Your Purpose - What Next?

Ok, you’ve set the stage for financial independence by defining your purpose, the reason why you want to achieve that level of wealth.  What’s next? You need to stop the bleeding! If you have credit card debt, you’re currently hemorrhaging money. You’re giving away your hard-earned cash to companies charging you an insane interest rate to borrow money from them.  More on this below...