Seven Things Millennial Soldiers Should Be Doing with Their Money Right Now
Hindsight is always 20/20, so it’s easy for me to dish out this advice now. However, think of me as your millennial fairy godmother here to tell you don’t make the same mistakes, I did, learn from them instead.
1. Make a Budget
However you want to slice it, you need a budget. For some people, getting themselves on a budget involves using modern technology such as an app, like Mint or YNAB. Other people get by with their own personalized spreadsheet system or even using a tried and true method like the envelope system.
I don’t have the time or patience for a complicated budget or tracking system. Instead, I figure out the savings I want to achieve every month, and I skim that off the top of my income before I ever pay a bill. I used to transfer what was leftover at the end of the month into a special savings account. However, I realized that a lot of times, there wasn’t any money left over at the end of the month. Now I pay my retirement, savings and investments first, and we learn to live within what we have leftover.
However you decide to budget, make it work for you and stick to it if you want to see results. Insert cheesy quote about a dream without a plan is just a wish [HERE], but seriously, you need a budget to achieve your financial goals.
2. Save for Retirement
It’s so hard to even think about retirement let alone save for it when you are only in your twenties. You’re basically planning for something that is going to take place in more years than you’ve actually been alive on this planet.
I first started saving for my retirement with a 401(k), the civilian version of the TSP. Each time I change jobs, I’ve started a new employer sponsored retirement savings plan and my husband continues to fund his TSP. The great thing about most employer sponsored retirement plans, is that the deposit comes straight out of your paycheck. Figure out the percentage from each check you can contribute and set it and forget it…bonus points if your employer matches contributions.
TSP/401(k)s and IRAs have annual savings contribution limits. In 2017, the majority of savers (different rules can apply when you are deployed), can contribute a maximum of $18,000 to their TSP an additional $6,000 into an IRA. $24,000 is a ton of money to save every year, and the reality is most people, especially when you are young in your career or rank, won’t have $24,000 to put towards retirement annually. Don’t fret, saving for retirement is a marathon not a sprint. Contribute what you can now and as early as possible in life, and continue to keep building your savings every year.
3. Know Your Credit Score and Be a Smart Credit User
No excuses. Nowadays, it’s super easy to get your hands on your credit report as well as your credit scores for free. Using a site like Credit Karma will show you what your score is and the factors that are contributing to it. Now that I understand how to calculate credit scores, I raised my own credit score by 40 points in just one month by addressing some issues like my credit utilization ratio. Higher credit scores not only help you to secure the loans you want, but they help you get the best rates too.
4. Do Your Own Taxes
I’m not the average bear when it comes to taxes. I genuinely am excited about the thought of doing my taxes. Someday I’ll probably have to give it up when my financial life becomes too complicated, but for now I know I can handle it. The CPA Practice Advisor says that for 2017, consumer can expect to pay an average of $273 for itemized returns and $176 for those that don’t itemize.
Unless you have really complicated financial circumstances, most servicemembers should be able to get away with using a basic out of the box service at a major discount or even free like TurboTax or TaxSlayer or IRS FreeFile. Better yet, make an appointment at your installation’s tax center and have your taxes prepared and filed for free by servicemembers that are IRS certified and understand military-specific tax issues.
5. Save for an Emergency
Saving for emergencies is a little bit like saving for retirement…it’s not really fun to do. Of course I don’t want to sock away three months of my monthly living expenses when I could spend it on something fun instead. However, it’s come in handy when we had to replace the A/C on our house, buy an international plane ticket with a weeks’ notice to attend a funeral or deal with a pet’s medical emergencies.
The reasons why you are spending money out of your emergency funds are usually never fun experiences, but at least you won’t have to add a financial burden to your already mounting stress. I used to keep my emergency savings in a regular savings account, so I could get to it quickly. Now that I feel more established, I keep half of my emergency reserves in conservative high dividend paying stocks. I fully acknowledge I won’t enjoy the same protections as keeping my funds in a savings account, but I enjoy a potentially larger return while still keeping my funds pretty liquid.
6. (Really) Understand a Few but Important Financial Acronyms
Sometimes when I start talking about IRAs and TSPs, some people just cock their heads to the side and stare at me like I’m an alien. I’m not saying you need to be a master of personal finance, but everyone should understand the basics of a TSPs and IRAs and what ROTH vs. traditional means as well. You know that APR relates to your credit card. However, do you understand what is considered a good APR for a credit card, verses a car loan, verses a home loan?
If you don’t understand a financial term, ask someone who does (and who you trust) to explain it to you, so your wallet won’t take a hit. Real life example. Last time I bought a car, the dealership’s finance guy was trying to sell me on their 8% APR loan. When I laughed at him, he asked me what APR I pay on my credit card and I replied that I pay 12%. He told me that 8% is a deal then. I agreed, if it was 8% for a credit card not a car loan. Remember that it’s your money, and if you don’t understand something, don’t be afraid to have someone explain it to you. You should know how your money is working for you.
7. Enjoy the Good Life (in Moderation)
My friend’s high school principal used to end their week every Friday with the same line over the school intercom before he rang the dismissal bell, “enjoy everything in moderation, including moderation”. She told me this line in college and I’ve loved it ever since. Moderation is key to be successful in life for most people, whether it’s your diet, spending money, or having a few drinks.
My philosophy on personal finance is that it is personal. As long as you can afford it, spend your money however you want. Some people will tell you that buying a new car is stupid, always buy used…and they turn around and spend all their money on going out to eat every night. If you are paying your bills, saving for retirement, and overall being a grown-up with your money, save for that new car, the designer purse, or the expensive vacation and when you’re ready, go get what you want.
Not only do you have to work hard to make your money, you have to work hard to make your money work for you. When your hard work and discipline pay off, go out and treat yourself (in moderation). Otherwise, your financial journey will feel like you are on a lifelong carb-free diet, and that’s not fun for anyone.