Money

Discussion in 'Life After the Academy' started by wannabe2013, Mar 12, 2009.

  1. wannabe2013

    wannabe2013 Member

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    I know this is an issue during the academy too...but what do most new officers need to do with their money? Is there enough to have a family and save? What kind of financial advisers are there available?
    What about that loan or bonus or whatever it is when you sign on for your 2/c year?
    Thanks
     
  2. Pima

    Pima Parent

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    Always pay yourself first. Many people will take their flight pay and invest that. Bullet and I kept a rule that we invested 30% of every paycheck. We have 3 beautiful children, owned lovely homes and I did not return to work until the kids were inschool, even then I only worked PT so I could be there for them when they were home.

    You can live quite comfortably on your salary asa married couple if you aren't trying to beat the Joneses. That means if she buys a new coach every month you will be hurting financially...buying 1 for her birthday you will be fine. When Bullet was a Lt. we had our 1st. The most expensive cost was flying home from the UK every yr....back in 90 it costs about 1 1/2 months in salary just to fly back for the 3 of us.
     
  3. Gen2

    Gen2 Member

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    Hope I'm not posting on this late. But it's never too late for good financial advice:

    When you are commissioned, try to put between 5-15% of your pay directly into TSP, Thrift Savings Plan. It's one of the best investment programs out there and it has even surprised financial experts that the government managed to do something right the first time.

    If you start with the first paycheck, you'll never miss it. Each time you receive a raise (either because of a year step or promotion), try to up the percentage.

    If you have a spouse, your spouse should fully fund any matching program with their employment and fund a Roth IRA. If your spouse is not working, you should still contribute some of your income to their IRA. Part of their job is supporting your career and that frequently comes at the sacrifice of their own career.

    Start an emergency savings account at the same time. When you leave the Academy, any funds leftover that are distributed to you will be a good start. You'll always receive transfer money each required move and we have been able to pocket alot of that money.

    At least with CG, there is an option of taking an interest-free loan to be automatically paid back over the next year. This is a certain number of month's base pay. Be careful about falling into the trap of accumulating debt each tour only to use that loan to pay it off. That loan is really to help with setting up a new household, not to stay ahead of the credit card game.

    Realize that moves are tough on your possessions. Buy for durability and flexibility, not the latest and greatest. Buy for movability too.

    Learn to value experiences and people, not things.

    We had our family young and I was always able to stay at home with the kids. Times were very, very tough those early years. But I knew we had a paycheck and health care. The rest is easy to budget out if your big bases are covered.

    We always had a plan for if the career thing didn't work out. Too many people think 20-years are guaranteed. You never know what might happen that's out of your control. Always plan for the "what if's" in life. Have life insurance not tied to your employer, have a savings account of 6 months living expenses, continue your education even if it's at your own expense, network in and out of the military world, keep ties back home, etc.

    Blessings.
     
  4. Pima

    Pima Parent

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    A couple of points to add on:

    At least for the AF, the "free loan" is 1 months pay, paid back with no interest over 12 months. Gen is right it can hurt you if you are already debt heavy.

    SO TRUE...when Bullet was a Lt. in 89, we paid 960 for a VCR (it had all of the bells and whistles, including something called a jog/shuttle,) 3 yrs later when we moved to AK it was damaged...they gave us 120 for the replacement. The reason why was because to replace it at that time it would cost 300, and then remove depreciation of 60%. Lesson learned DVD players are disposable...never bought high end again.

    Smartest thing I did after our first PCS...went to base thrift store for curtain rods...they are very expensive and everytime you pcs, no window frame is the same size, however, you can pick them up at the thrift store for a buck, b/c most wives dump them knowing they won't fit.

    Always pay yourself first...after using the VA for your 1st home, to re-use it again is 3%, and not worth the funding fee(processing costs), that means you need to do FHA or conventional. FHA is 3% down(straught to the mtg), if you invest young you will be able to buy later on and not pay somebody elses mtg when you rent for 3 yrs!
     
  5. Christcorp

    Christcorp Member

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    i told my son that he first had to pay ME back for the first 18 years of his life. He said I was "Full of Ca Ca". LOL!... I said; "Yup, you're going to make a FINE OFFICER".

    In all seriousness; as posted pay yourself first. Also, be very careful with the cheap $35,000 (or is it $30,000) loan you can get after graduating. If used right, you can set up your retirement 40 years from now quite nicely. On the other hand, you can do what some do and buy that BMW that you think is so cute. And paid back in 5 years for most people can be excellent. By the time the loan is paid back, you are then a captain, and it basically becomes one heck of a big pay raise. Right when you'll be able to use it most (Approximately $500-$600 a month). Plus as I said, your retirement is funded for 40 years later. On the other hand, if you take the money and buy the BMW, now you are BORROWING money for furniture, getting married, vacation, etc... The old pay me now or pay me later comes into play. Do it right for 5 years, and the rest of your life is taken care of financially. Don't do it right, and you'll be "Living to WORK" for a long time instead of "Working to LIVE". later... mike.....
     
  6. Pima

    Pima Parent

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    I can't tell you how many officers that I know who did not pay themselves when it came to bonuses, instead they went off and bought the newest car, did the extreme vacation and every new electronic gadget, instead of investing some of it. A few yrs later they moved and when friends were able to buy nicer homes with a lower mtg they sat there wondering how that happened! Easy answer the others socked some of it away for the rainy day.

    You will see that it is typically very common for the enlisted. I could never figure out how they could afford the Hummers, Vettes and Cadillac Escalades, until Bullet pointed it out that it was Bonus money. The funny thing was one time an enlisted spouse asked me, why all of the officers have at least one junker car...I explained that most have the nice new family car for the wife, and he goes to work in the old paid off car. At the time I was driving the top of the line Suburban(which had just replaced the 4 yr old Grand Cherokee) with all of the bells and whistles, Bullet drove the 10 yr old Honda that we bought when we first got married. However, because we did that, he got his dream car a yr later (Corvette).

    My best piece of advice for purchases...BUY A HONDA...YOU CAN't KILL THEM. We had that car for 12 yrs, over 118K miles, spent only 1K on repairs (besides brakes and tires) and it was still running great when we donated it(very difficult to travel x country with 3 cars and a camper, and only 2 drivers:rolleyes:).

    My best piece of advice on what not 2 buy... A 2 seater sports car if you are very involved with someone...Can't tell you how many guys showed up with their sports car to the 1st op assignment only to have to sell it because the wife got pregnant! (Bullet was one of them)
     
  7. hornetguy

    hornetguy USAFA Cadet

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    tpg, I drove a 1996 camry that my family got new at the time while I was in high school (and sometimes when I go home). Last of that model year, but I like the styling better than the next generation. Still runs like new too!
     
  8. hornetguy

    hornetguy USAFA Cadet

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    Our family has gone through a 1996 camry (V6!), 1997 Land Cruiser, and now my 2008 FJ Cruiser. :) We like our Toyotas too! I love(d) my camry. Decked out too.
     
  9. btown13

    btown13 Member

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    sorry to interupt, but to back up toyota
    I drive a 1991 toyota tercel. got it from my uncle. After two years with a teenage driver, it still gets about 23/24 mpg in the city. We had to replace the alternator, but it was expected. too bad i'll have to get rid of it. the car has really grown on me
     
  10. Pima

    Pima Parent

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    TPG...a day late and a dollar short (no pun intended), but I raise you your 20 K story for 84K.

    Bullet did a jump tour with the 82nd, and right before we left this was the headline news in the area:

    A soldier from Ft. Bragg NEVER GOT PAID IN 4 YRS. this guy thought that they gave him his uniform, room and 3 meals a day, so he didn't expect any money from the military. He had a 2nd job working at Papa Johns or Little Caesars (can't recall) like many other young enlisted, and his folks floated him money to help in living. When he outprocessed tha A&F saw the error, even questioned why he never questioned...answer, they fed, me clothed me and put a roof over my head! They brought in special investment counselors for him in out processing because 84K back in 95 was a heck of a lot of money fo a 22 yr old.

    I still chuckle that he never wondered why people got happy on the 1st and the 15th
     
  11. Pima

    Pima Parent

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    When Bullet and I were first married he got paid 40 bucks one time. We had just PCS'd to Mt. Home and moved on base, he got LES and realized that paid us BAH, needless to say A & F took all of that money straight out the next paycheck...OUCH!

    Warning to all of you make sure you look over you LES every month, even for the state withholdings. Another friend realized that even though he filed for AK, the people at A & F put AR instead of AK, it took him months of fighting with the state of Arkansas to convince them he never ever even stepped foot in their state before they refunded him his taxes!
     
  12. wilbur5672

    wilbur5672 Banned

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    "Also, be very careful with the cheap $35,000 (or is it $30,000) loan you can get after graduating. If used right, you can set up your retirement 40 years from now quite nicely. On the other hand, you can do what some do and buy that BMW that you think is so cute."

    I am not quiet sure I follow the significance of this statement. My son tells me that it is referred to as a "starter" loan with a purpose just what you warn against, a car, and uniforms, etc that a 2nd Lt will need to get started in the military. I know a cute BMW is superfluous, however dependable transportation is a must and new cars don't come cheap these days. If the starter loan is not needed to "start'', would it not be wise to forgo the loan and pursue a more prudent investment strategy, one that comes out of the monthly pay check? I am not sure that borrowing money for investment purposes, no matter what the interest rate, is good advice.
     
    Last edited: Apr 6, 2009
  13. Christcorp

    Christcorp Member

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    2 things to realize. 1st: It's an almost 0% loan. Whenever you can borrow money that cheap, you SHOULD. Especially if you don't need it. 2nd: There is no reason in the world anyone can justify needing to spend $30K+ on a new car at 22 years old. Do it if you want; it's your money. But you can set up some uniforms and basics; including a good dependable used car; and still be able to invest an almost 0% loan. People, including military personnel, do quite well without having such a loan. 2LT's can too. But if you want to spend $20-$30K on a new car for a status symbol; have at it. Not going to bother me at all. The topic of this thread is about money. Some of us have done quite well with our finances. Just providing some opinions and advice as was solicited. No one is forced to follow such advice or opinions. But it's quite possible to get a good used car, uniforms, furniture, etc... For around $10,000. But there are some that believe that they have to have new everything and the best of everything. Hence the debt problem many Americans experience. "Pay me now or Pay me later". Do good the first 5 years and you'll be able to have a very good standard of living for most of your life. Spend money you don't have and you'll be paying for it most of your life. There isn't one cadet that NEEDS a $30-$35K. They can start their career with a few thousand dollars, which they should have no problem saving over a 2 year period of their C2C and C1C years. Now, what you do with a $30-$35K low interest loan is up to you. Not going to bother me. And for what it's worth; when it comes to money, there is NOTHING that money is SUPPOSE to be used for. You determine what it's used for. Later... Mike....
     
  14. Gen2

    Gen2 Member

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    For many young single sailors, that new shiny car will spend alot of the first year in the Academy parking lot and other places where little dings and boo boos happen, possibly under piles of snow for days at a time.

    After graduation, that still shiny car will sit in a lot of apartment complexes and docks while out on patrol.

    Hence, the advice to not go all out with 100% of the loan proceeds on an auto. There's alot of wiggle room to get a nice looking, dependable vehicle that is appropriate for where it will be parked and how often it will be used.

    Especially if that young soon-to-be-commissioned officer thinks the sports car is all that and a bag of chips. Too many of those cars have been traded in before the loan is paid off for something that holds a carseat!!!!

    I agree that a little counseling on setting aside $5000 for an emergency fund would be helpful--and to tell those young adults to start adding another $ 100-$250 per month from their oh-so-big paycheck (compared to Academy pay) once they are commissioned.

    Not every has a chance at seed money like this loan!
     
  15. Just_A_Mom

    Just_A_Mom Member

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    I am not sure about the other academies but there is plenty of financial counseling at West Point. Cadets are given many opportunities to learn about money management, both while they are cadets and after commissioning.

    Some Cadets are good at this and others - not so much. Such is the way of the world. Some cadets will have already blown their credit rating by the winter of Cow year and won't qualify for their starter loan. Others will have drank and partied their way through their loan before graduation.
    The timing of the loan makes it a perfect time to buy a car - as a Cow at WP is allowed to have a car after spring break.
    Honestly, the cusp of young adulthood is a period when- if unencumbered a young adult can treat themselves. If the purchase of that dream car is anticipated by a cadet who uses it as personal motivation - during the darkest hours of being a cadet- to graduate keeps one going then they shouldn't deny themselves.

    tpg also brought up a great point - uniforms. They are not cheap. Firsties must buy plenty of uniforms for commissioning. Sometimes base housing is not available and the young officer must rent an apartment requiring first months rent, last months rent and a security deposit which can add up several hundred dollars.
    I have heard of cadets using the loan for a down payment on a vacation condo or simply investing the money. Keep in mind, if you invest $30,000 in the stock market and it tanks overnight - you have lost money that you borrowed.

    Everyone's personal finances are different. Some will continue to have the bank of mom and dad available while others will have been weaned on R-day. All cadets/mids should take the time to become aware of and knowledgable about money management.
     
  16. wilbur5672

    wilbur5672 Banned

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    I would say that one has to have a car, not necessarily a new one, and uniforms. However, to irrevocably commit $700 per month savings at a very uncertain period in their life might not be wise. They have no clue really as to their living expenses during the first five years after graduation. They also may get downsized or, if they flunk out of initial training, be released from their commitment. It seems to me to be the ultimate in instant gratification, borrowing money for savings. Why not be more conservative and save it as they earn it? Then, if an unknown hits, they are more prepared for it.
     
  17. Christcorp

    Christcorp Member

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    Basic economics: A cadet for 2 years is use to getting less than $200 a month. In their 3rd and 4th year there, they will be getting most of their $900. If they were able to put $400 of it away each month, they'd still have a nice amount of money (That they weren't use to having each month). 2 years later, upon graduation, they'll have approximately $10,000. Take the $35,000 almost interest free loan. Take $10,000 from it and add it to the $10,000 you already saved. Now; you can spend $20,000 on everything you will need starting off your new life. Including a decent used car; uniforms; some furniture; etc... Take the leftover $25,000 from the almost 0% loan and put it in a modest 4.5% interest CD. (Insured by bank). Leave it there for the next 40 years when you get ready to retire. It will be worth $150,732.88.

    The $35,000 loan over 5 years will be about $590 a month. But, because you have everything you need and it's PAID FOR IN CASH; $590 is easy to do on a 2LT's pay. Now; 2 years down the road, you become a 1LT and get a pay raise. 2 more years later, you're a Captain and another nice pay raise. 1 year later you have a choice. You get out of the academy and your $590 loan is PAID OFF, and you start your new life debt free (with the long term retirement supplement taken care of.) Or, you stay in the Air Force and you've now given yourself an instant $590 pay raise (For all perspective purposes). Give yourself a $290 pay raise and take the other $300 (because you're not use to having it anyway); and put that into a nice modest CD or similar at 3%. Do this until you retire (approximately 20 years) and you'll have another $105,399.04. Without adding anything more to this, it will be worth $191,905.83 when the first chunk becomes worth $150,732.88. Now; you're sitting there with almost $350,000; a military retirement; ANY RETIREMENT or 401K that you received from your 2nd career that you did for 20 years after the military; and anything you saved. This will net you approximately $75-$100,000 a year income without every having to work again. You can truly retire and enjoy life.

    And you did all this without living payday to payday or taking out 1 penny of money you were LIVING ON and would put a damper in your lifestyle. Not using any of this money I'm talking about, your budget will still allow you to buy that new car with payments, travel, vacation, home, etc... I'm explaining basically a 5 year plan. After the 5 years, the rest of your life is financially pretty well set up. Again; 5 years of planning, and you can set yourself up for life. Remember, you should be "Working to Live"; NOT "Living to Work". Anyway, this is my $0.02478583 (inflation). later... mike....
     
  18. wilbur5672

    wilbur5672 Banned

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    Basic federal income tax and inflation: The proceeds on the CD will be taxed each year. That combined with a 3% or so inflation rate, the young officer will not lose too much. He probably won't be able to buy a new car in 40 yrs but probably can find a nice used one. Redo your numbers taxing the proceeds annually and then compare it to a $590 per month tax deferred retirement plan over the five years buying the same CD.
     
    Last edited: Apr 6, 2009
  19. Christcorp

    Christcorp Member

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    wilbur; proceeds only exist if you cash them out. They are numerous ways to roll them over without having a tax issue. We're talking about 40 years down the road, not cashing them in every year. I don't have to redo the math. I just have to look at my investments. And CD's were only an example. There are a number of safe investments. I only mentioned CD's because it is something that just about everyone has heard of. But it can be done with CD's and tax deferred. But the BIGGER point is that with a little discipline, you can take $25K and take care of your later years without suffering every payday trying to put money away in a savings account; risking it on high risk investments; or taking it out of your normal monthly paychecks. And most of all; looking back when you retire from the military with very little in savings or invested and thinking how to play catch up. A 22 year old has time on their side.

    But if you think it's better to put $25K immediately into a car or something else that will depreciate quicker than just about anything else; and then start using credit cards and such to buy things later; have at it. Like I said; I don't have to redo the math. I've already done it.

    But what's really important is that these are just opinions and suggestions. We trust these young men and women to attend the academy and then protect and defend us. I trust them to also live their lives any way they want to. And I'm sure there will be a lot of mistakes and a lot of "I wish I had ......". Just like I went through. later... mike....
     
  20. wilbur5672

    wilbur5672 Banned

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    "proceeds only exist if you cash them out. They are numerous ways to roll them over without having a tax issue. We're talking about 40 years down the road, not cashing them in every year"

    So, unless you hold a stock 40 yrs or find a bond or CD that doesn't mature for 40 yrs, you will have to cash them out prior to retirement and pay taxes on them. If you believe otherwise, you might look into a new financial advisor.
     

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