From Barracks to Bank: Starting Your Financial Journey in the Military

Welcome to Military Wealth Coach, where we guide service members like you on the path to Financial Freedom. In this post, we’ll discuss how to start your financial journey in the military, covering military finance basics, starting budgeting, military savings, and financial literacy. Before we get into the details of how to take control of your finances and move forward, let's start by identifying the main challenges.

Challenges to Mastering Your Finances

It's one thing to talk about financial planning, saving, and investing, and an entirely different thing to actually do it. We can teach you everything we know about achieving Financial Freedom, but if you can't get out of your own way, you'll never achieve it. So before you even start planning and Dreaming, you need to be aware of the main things that will stop you from getting where you want to go. It's just like in the military when you get an "operations order": you start with the enemy situation.

1. You're Young and the Future is Far. When you're only 20 or 25, it's hard to save money for something 5, 10, 20, or 40 years in the future. You always have a "present bias" which means that you think you'll enjoy what you can buy right now for $100 or $500 (or $25,000) more than what that money can buy you in the future. In order to really commit to saving, you have to be able to see how much that money will buy in the future if you just save it. 
2. No Plan. Just about anywhere you go or any senior officer or enlisted in your unit you talk to has an opinion on how much to save and how to invest it. When you're getting started you don't know what you don't know, so you listen and maybe agree and follow. But train yourself to ask "WHY?" and see if they can explain why they are saying what they're saying. At the Military Wealth Coach, we've created hundreds of spreadsheets to do the actual math required to create a plan of how much to save and invest today to reach your Dreams and Goals tomorrow. You need a specific plan that gives you proof that it will work -- not just guesswork or a shot in the dark. 
3. Peer Pressure. No matter how good you are at overcoming the first two obstacles, you will always have to show up to work and deal with the peer pressure to spend-spend-spend on the latest drip. It's ironic in the military that we collectively have such nice cars and clothes, yet also have more credit card debt and less savings than the average American. Being broke is sus, being rich is dope. Stop running with the crowd that lives to spend every dollar today, and start to talk and listen to people who know that the more you save today the more you'll have to spend tomorrow. 

You can pick up our first book, Service and Wealth:Ten Proven Money Habits to Master Your Finances in the Military to learn some great money habits and tricks for overcoming these obstacles, including how to learn to look the other way and stop buying stuff just to impress others and seek fake status.

Understanding Military Finance Basics

Now that you've made yourself aware of what can stand in your way, and fixed your mindset to focus on becoming rich and not just having something for right now, it's time to get into the basics. The first step in your financial journey is understanding where your money comes from. This includes knowing your pay structure, benefits, and allowances. Your Leave and Earnings Statement (LES) is a critical document that provides a detailed breakdown of your earnings, deductions, and leave balance:

1. Base Pay: Your primary salary based on your rank and years of service.
2. Allowances: Additional pay for housing (Basic Allowance for Housing - BAH) and food (Basic Allowance for Subsistence - BAS).
3. Special and Incentive Pays: Additional pay for specific duties or skills, such as hazardous duty pay or flight pay.

By understanding these components, you can better manage your income and plan your finances. For example, you'll learn in our courses (and from your coaching sessions if you take it to the next level) how to apply the Military Wealth 40:40:20 budgeting plan. In order to set up your budget with this plan, you need to know your pre-tax income, not just how much is direct-deposited in your checking account each 1st and 15th. You'll find that the "20" includes your taxes -- and you'll learn from our books, courses, and content strategies to reduce your taxes and save even more.

Ultimately, if you're going to achieve Financial Freedom, you've got to run your life like a business, which means you have to know exactly how much money is coming in -- and how much is going out.

Starting Budgeting

Budgeting is the foundation of any successful financial plan. It helps you track your income and expenses, ensuring you live within your means and save for the future. This is what we mean when we say you have to run your personal finances like a business: you are an Income Statement, nothing more than money coming in and going out. You need to maximize the income and minimize the expenses.

The typical way to budget just jumps right into this process, and you fill out a template that starts with income, ignores taxes, and then moves on to expenses. After you've written down your expenses, you're asked to set financial goals and set up savings plans. This is wrong and will never work.

Instead, we at the Military Wealth Coach teach you that the very first step is to Identify Dreams and Goals, set up your financial targets, and create savings plans. This makes SAVING the very first thing you pay attention to, and not SPENDING. In other words, after you write down your income, you need to subtact what you need to save to reach your goals, then live on the rest. Here’s a simple process to start:

1. Identify Dreams and Goals. These should be from 1 year to 100 years in the future, for example:
   1. 1 Year: pay off $3,000 payday loan debt and save $5,000 for Emergency Savings Fund
   2. 3 Years: save $15,000 for a down payment to buy a house with the VA Loan
   3. 5 Years: save $20,000 for a safe and reliable family car
   4. 15 Years: save $100,000 to help kids with college tuition
   5. 30 Years: save $2.5 million so I can retire on my 50th birthday
2. Calculate Your Income. Include every penny.
3. Calculate Savings. Determine exactly what you need to save each month to achieve every goal. If you can't afford to save for all goals right now, save for the earliest/biggest goals, and as your income increases start adding in the other goals. Update your goals every year.
4. Input and Track Expenses. From the money left after savings (hint, it should be 60% remaining):
   1. Subtract 20% to pay income and payroll taxes.
   2. From the remaining 40%, start subtracting SHELTER, FOOD, CLOTHING expenses.
   3. Continue subtracting in order of importance, such as UTILITIES, INSURANCE, TRANSPORTATION, etc.
   4. When you get to $0, you are left with a list of things you may need to give up for a while. 

Now you have a budget that is based on your personal Dreams, Goals, and Values. If you really want to follow through and overcome the obstacles like "You're Young and the Future is Far", this is the only way to do it. If you follow the traditional budgeting methods, you'll keep more expenses and sacrifice saving, and you'll never afford the life you dream of or reach Financial Freedom.

Using a budgeting app like Mint or YNAB (You Need A Budget) can simplify this process and help you stay on track -- but remember, they are just tracking your money, not in charge of it. You still need to be your own financial boss and set up savings and investment accounts first.

Building Military Savings

Saving money is crucial for financial security and achieving your goals. In fact, cash is the answer to just about every financial stress or problem you'll ever face. That should make it simple: to get out of or avoid financial pain, stop spending all your money and build up a large "War Chest" of cash. As a service member, you have unique opportunities to save and invest. Here are some tips to build your savings:

1. Start an Emergency Savings Fund (ESF): This is non-negotiable, because when you don't have cash for financial emergencies, you have to go into high-interest debt, which is the worst financial decision you can ever make. Don't aim to save at least three to six months’ worth of living expenses, because that's for civilians: save enough to cover emergencies for your life. We share some smart tricks in Service and Wealth and our pre-release book War Chest: The Standard Operating Procedure for Budgeting and Building Wealth in the Military on exactly how to do this.
2. Utilize the Thrift Savings Plan (TSP): The TSP is a retirement savings plan for federal employees and service members, and is the only other MANDATORY SAVINGS ACCOUNT (after the ESF). One day you will not be able to work anymore and will need money for retirement. Under the Blended Retirement System (BRS), you receive a 5% matching contribution from your service after 24 months of service, which is free money. You can reach a 10% savings rate by saving only 5% of your money, making this an absolute no-brainer!
3. Automate Savings and Investments. This is another no-brainer -- and a core part of the budgeting technique we teach you in War Chest and in our Signature Course and coaching. If you aren't making automatic transfers every month (or each payday once you are at least an E-5), you will skip months and rob yourself. Automation protects you from yourself and peer pressure, and keeps you on track. An added benefit is it saves you time and energy, because you do it without thinking about it.
4. Take Advantage of Military Benefits: Use resources like the Savings Deposit Program (SDP), which offers a guaranteed return on your savings while deployed in certain locations. And when you deploy to combat zones, your entire income can become tax-free, giving you perfect opportunities to accept Continuation Pay and Reenlistment Bonuses without taxes, or to do a "Mega Backdoor Roth" conversion of your Traditional TSP savings without tax penalty. Learn more about these strategies, including exactly how to perform the Roth conversion, in our books, courses, and coaching. 

Self-Educate Yourself on Finance

This is the whole reason you're here, isn't it? The biggest thing holding you back from affording your Dream Life and achieving Financial Freedom is financial literacy. Improving your financial literacy will empower you to take control of your finances and make smart choices, and you'll start to see major benefits after just 50 hours of learning. Here are some ways to enhance your financial literacy:

1. Educate Yourself. Read books, attend workshops, and take online courses on personal finance. Be careful with social media and online sources -- but be just as careful about taking professional advice and opinions from Wall Street. They care more about how much they can make off of you than they care how much you can make for yourself. For books, I recommend starting with:
   1. "Rich Dad Poor Dad" by Robert Kiyosaki
   2. "Your Money or Your Life" by Vicki Robin
   3. "Set for Life" by Scott Trench
   4. "The Total Money Makeover" by Dave Ramsey
2. Utilize Military Resources: Tuition Assistance (TA) can be used for every level of higher education, including Professional Certificates that you can earn in 3-6 months. Be wary of free information that you get in the military from Command Financial Specialists, annual training, or various official DoD websites. These tend to provide generic and outdated advice that has not been professionally validated, or adapted to military life. For example, you'll still be told to save 3-6 months salary for your Emergency Savings Fund, even though you have a guaranteed job and paycheck!
3. Join Financial Freedom Communities and Coaching Programs. At some point, you'll be ready to customize all your knowledge into a plan that is proven to work for your specific situation and goals, and is not some off-the-shelf generic advice. Coaches and mentors will help you do that. Be wary of paying Certified Financial Advisors, wealth managers, or retirement planners: they are not required to work in your best interest, and typically earn commissions and fees from selling you their products. If you do decide to hire a professional, make sure they have a Certified Financial Fiduciary (CFF) license. (CFFs are required to do what is best for you, even if it means they don't sell you anything.) 
   
   

Conclusion

Starting your financial journey in the military is an exciting and rewarding process. By understanding military finance basics, starting budgeting, building savings, and enhancing your financial literacy, you can achieve financial freedom and peace of mind. Remember, the Military Wealth Coach is here to support you every step of the way. Stay tuned for more tips and strategies to help you thrive financially in the military.

For more, including weekly blogs and Podcasts delivered directly to your inbox, remember to subscribe!

Thank you for reading, and stay financially fit!

-Coach