You Can Make It On Your Own
FU money can help members of the military make the best decision for them based on what will make them happy. One could argue that the pay and benefits from military service definitely help with happiness. However, about 93% of Americans go through life without ever serving in the military. You can make it without the military.
“Step-selling” My Way to an Eventual Retirement
I step-sold myself into staying longer and longer in the military. If I had the finances built up in my first enlistments, I might have taken a different path. Take it from me, if you’re not enjoying it, it’s time to look for an exit. Others have felt this way too. Once you get done reading here, I highly suggest you check out Doug Nordman’s work on this. Read his article Don’t Gut It Out and read the comments below that article for additional nuggets of info.
Bottom line: don’t step-sell yourself into oblivion. As I write this, I still feel trapped and chained to completing my time to get a military pension. I cope with it better and better over time. Trust me, there’s a better way if you’re no longer finding joy and fulfillment in the military. Start making small changes now so you are in a good position to make career decisions.
When Should You Worry About Building Up FU Money
If you are struggling to pay bills and make ends meet, then getting your financial basics under control is the first order of business. If you really want to gain independence from a job you hate, then you HAVE TO find a way to get a solid foundation. Get on a debt pay-down plan, downsize your vehicle if needed, sell unnecessary stuff, get a second job (need permission from your command for this), build up an emergency fund, and get your spending under control.
Until you can get some financial stability, you should not even worry about building up any additional savings or investments. If you need help with this and you’re military, I suggest using the Personal Financial Counselor at your local base. You can use Military OneSource for assistance on finding one local to you or virtually. A lot of Chaplains also offer guidance and help in this area. Many of them keep books for debt reduction and personal finance on hand.
How to Build FU Money
You can actually call this anything you want, but you’ll want to build up this money in an account that is separate from your retirement savings and emergency fund. If you don’t have those started and established, do that first. I suggest opening a separate brokerage account specifically for this goal. I actually opened an account with Schwab separate from my main Vanguard account to save up for transitioning out of the military. (Note: I’m not affiliated with either and this does not constitute an endorsement.)
Now, you’ll want o figure out how much to put in there each month. I plan on having about 6 months of expenses in an emergency fund and then an additional 6 months in my transition fund. I would plan to use the transition fund and not touch the emergency fund unless I absolutely had to. Once you know this amount, then calculate how much to invest in that fund each month. You can use an investment calculator online to help you out. I would use a fairly conservative investment return (less than 10%) if you’re going to invest in broad-based index funds.
Understanding Taxes
It is really important that you understand the tax implications of what we’re looking at here. The last thing you want to do is create a tax problem for yourself. As long as you have the money invested for over a year, your gains will be taxed at the long-term capital gains rate. Otherwise, your investment gains will be taxed as short-term capital gains which are included as ordinary income.
For many people in the military, especially if you’re married and your spouse doesn’t work, you very likely will not have to pay much in tax or maybe not at all. Look on the IRS website to get the most up to date information on this. If you’re unsure, talk with a CPA so you don’t make a mistake. However, don’t be afraid of the taxes either. Your principle, or money you put in the investment account, isn’t taxed again – only the gains on that investment.
Creative Ways to Fund Your Exit
Enlistment or Commissioning Bonuses
If you know you’re not liking your time in the military and you are still getting bonus payments, what a great way to save for your exit! Take the money that helped draw you into signing up or staying into a way to secure your transition out.
Special Duty or Overseas Allowances
You could use the temporary extra cash you’re getting for a special assignment or cost of living allowance while living overseas to build up this cash. You might be surprised at how quickly your investment account will grow with regular contributions.
Savings Deposit Program
If you know you’re going to deploy, look into using the Savings Deposit Program. This program is basically a savings account on steroids. Last I checked, you could get a guaranteed 10% return in this account. That’s unheard of anywhere else. I haven’t used it myself because I was just getting my finances figured out at the end of my last deployment.
Final Thoughts
I hope this information has been helpful and at a minimum given you something to think about. If you’re not having a good time in the military, please do something about it. Don’t just complain about it to other people. Accept that you are where you are largely because of choices you have made in life. Yes, we all have different options to choose from, but dwelling on things outside your control isn’t helpful or productive. Take ownership of your situation and make a decision on what to do next. Chart your path to the American dream you’ve help defend with your blood, sweat, and tears!
P.S. This paragraph is as much a pep talk to myself as anything else. It’s the advice I wish I’d been given 15 or 16 years ago. I’ll be fine 🙂
Action Items
- Make sure you’re in a good financial position (minimal or zero consumer debt, emergency fund, saving toward retirement, etc).
- Decide what FU money means to you.
- Build an emergency fund.
- If you’re military, visit Doug Nordman’s website
Check out our Facebook group and connect with others on their journey to financial security and independence!
To contact me, please email podcast@start100k.com.
Now go get started!
Links:
Doug Nordman – Don’t Gut it Out
Starting Salary After Military Affects Future Salary
Never Split the Difference
Before you go, please remember this information is for educational and informational purposes only. Please seek tax, legal, or investment advice before making any decisions.