Financial Advice For a New 2nd Lt / Ensign

Career Starter Loan Advice?

Does anyone have some advice for what to do with the career starter aka "car loan"? I've heard that I should get a Roth IRA, and max it out for this year and the previous year, but I'm not sure what else to do beyond that for making smart decisions with the money.
 
Buy a cool car, pay it off in time, develope some credit and save save save. Roth IRAs are a good idea if taxes take a job off the fiscal cliff. Or don't buy a car, save it and live a relatively debt free life (while paying off the loan on time).
 
Our DS did not take the entire starter loan, he took only about 10K, and invested 5K into an IRA, than kept the 5K to set up his 1st home.

He didn't use it for a new car because financially it is stupid to take a loan at 2.75% int when you can get a new car loan for 0-0.9%. He still has the same amount in loans, but 15K of it is 0% for 4 yrs compared to the starter loan rate.
 
Roths are a good investment tool. You can put up to $5000 in for 2012 up until April 15th 2013 and another $5000 in for 2013 after the first of the year. What you invest in and the unknown future will determine if it was a good idea to borrow money to invest.
 
Our loan was $30K at 1%. We called it a car loan, although, at the time, I had no idea what it really was. I blew it all on a nice sports car, which I still own.

You will make MORE than enough money your first two years to save, especially if you're on a ship.

You're also going to move every 2-4 years, so until your career path settles in and you have an idea of where you're going to be, no need to buy a house (although it's a good market to buy in right now).

No matter what you chose, plan to pay off the loan, and remember that you, like your fellow service members are in a good position to save, so do it.
 
Son's loan was $35K at .5% interest. He maxed the two years of Roth IRA and invested the rest.

He continued to drive my old truck that he bought his Junior year (still drives it). He lives simply (OK, it's easy not to spend money when you're in pilot training in Del Rio, TX...no time, no opportunity). His investments have done very well and he has an incredible chunk of money invested for a 23-year-old. The loan payment is about $600/month but it is his only expense and he continues to stash money away each paycheck.

Stealth_81
 
Not bad! I think I would have lost a nice chunck of my money in 2008 had I invested it. That would have made me sad. Luckily my 401k hasn't taken a hit yet.
 
Not bad! I think I would have lost a nice chunck of my money in 2008 had I invested it. That would have made me sad. Luckily my 401k hasn't taken a hit yet.

You would have only lost it if you got scared and sold.
 
There was reason to be scared, and the markets still haven't responded.

Although the next crash will be based on U.S. sovereign debt, not investment banks, and when that happens, we'll figure out no one is big enough to bail us out. When we crash, all that savings will mean nothing.
 
There was reason to be scared, and the markets still haven't responded.

Although the next crash will be based on U.S. sovereign debt, not investment banks, and when that happens, we'll figure out no one is big enough to bail us out. When we crash, all that savings will mean nothing.
So should you invest in gold or bullets?
 
So should you invest in gold or bullets?

When you have guns you don't need to invest in gold or food, you just need to know who did.

HA! :wink:

Gold's pretty high right now, other metals can be a good bet.

Read the book "Boomerang" to mess with your idea of the future. We're getting to the point where unfunded liabilities like Social Security add to the debt, and we'll pay more out of it than is going in. Those kinds of unfunded liabilities hide the true U.S. debt (for now). Instead of the $16,000,000,000,000 we see now, you take on the additional liabilities that already exist... it's closer to $30,000,000,000,000 or $40,000,000,000,000... and that, my friends, will sink the U.S. And we're not just talking "oh, my 401K took a hit... we're talking "what 401k, savings, checking, insurance...." it's all gone. "But LITS I'm a retired vet, I have retirement".... tough, that's gone too.

And that scares me more than just about anything else. And like an idiot on a boat 2,000 miles off of the coast in a hurricane waiting for the Coast Guard.... help aint coming.
 
With regards to the Career Starter loan...many cadets in ROTC take it out before they find out their components, whether it be active duty, USAR, or ARNG. This can be a mistake if one doesn't plan accordingly.

If a cadet is selected for reserve component duty and he or she has a ~$500/month payment looming over their head 6 months after commissioning, that can be a heavy and stressful burden. Personally, I have a GRFD scholarship and knew that I was going to be going into the National Guard, so when it the career starter loan became available I only took out $10,000 instead of the full $25,000. My monthly payment will only be about ~$200.

Just something all those who are considering reserve component duty should think about.
 
AUCav,

I am going to guess you are Army.

Just going through this with DS as an AFROTC cadet, that will not be an issue. Not only can they not take that loan until spring their SR. yr., they already had their career path (AFSC). All AFROTC cadets go ADAF.

The one thing I would point out is in this realm there is a fine print on that loan. For example, our DS is a UPT student, if he busts UPT and the AF decides to release him that loan jumps to an insane APR.

Read the fine print.

I would also agree from the component that ROTC cadets go AD after the SAs, it can be months, so as you stated be prepared to have the funds in place JIC.

The final thing to understand is using our DS as an example. He reported to Laughlin a month ago, but his pay is still wonky. Had he not kept money aside, he would be in trouble. His pay will straighten out, but for right now he is lucky he had savings.

AD members will tell you DLA, TLA, and per diem rarely ever covers the actual cost of moving. You need to be prepared for the rainy day.

That loan is a career starter loan, not specifically a car loan. It is meant to start your life regarding everything.

It can become even worse for ROTC cadets because they tend to forget those Stafford loans, and max out the career loan. Your credit report will show both. They could be 60-80K in debt in a blink of an eye, even if they were scholarship recipients (ROTC only pays tuition, not R & B).
 
LITS: The issues you mention are real. How and when it will play out is an unknown. It really doesn't help one decide upon an investing for the future coarse of action unless you are convinced it is going to happen relatively soon and you decide not to invest and just live for the moment. If things truly collapse we are all in the same boat so it doesn't really matter. However, if things don't completely collapse in my lifetime, I would like to have a chance to support myself in my old age. I think I will continue to invest and save for the future even if that future is uncertain.
 
Roths are a good investment tool. You can put up to $5000 in for 2012 up until April 15th 2013 and another $5000 in for 2013 after the first of the year. What you invest in and the unknown future will determine if it was a good idea to borrow money to invest.

One caveat about Roth IRAs: You must have earned income. If you are still in school and do not have earned income, the contribution will be disqualified. Certain types of income such as interest, dividends, the value of the room & board scholarship component - these are not considered to be earned income.

On the other hand, if you do have a small amount of earned income (having just begun your career or working while you are in school) and are in a low tax bracket, the Roth IRA is a great savings tool.
 
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LITS,

I will add onto your the "I am retired vet" comment. The fact is the day Bullet dies, his retirement pay of @45K a yr goes buh-bye, as a spouse we had to place that into our investment plan.

I would get some benefits, but not enough to make up the difference until I am eligible for his SS benefits.

I would also suggest buy life insurance. 400K seems great, but the fact is rates will change when you retire at 40 something.

Buying it now at 22-23 yos with a company, such as USAA, will be much cheaper than when you are even 30 something.

During Bullet's career, unfortunately he had to bury about a dozen of his peers. That SGLI is great, but the fact is it is not enough even with SS and military death benefits to maintain the survivors life style forever.

We have also known some spouses that fell in love yrs later, but wouldn't get remarried because they would lose their military bennies. We also knew some that did re-marry. The difference was the ones that had outside life insurance could afford to lose their military benefits financially.

Whole Life insurance at 22 is cheap, cheap, cheap. Basically give up one lunch at BK a week and you can do it.
 
One caveat about Roth IRAs: You must have earned income. If you are still in school and do not have earned income, the contribution will be disqualified. Certain types of income such as interest, dividends, the value of the room & board scholarship component - these are not considered to be earned income.

On the other hand, if you do have a small amount of earned income (having just begun your career or working while you are in school) and are in a low tax bracket, the Roth IRA is a great savings tool.

Correct. The OP is an academy cadet and therefore has earned income sufficient to allow him to max the Roth out.
 
I got 30k at 1.49% from USAA.

I maxed out two years of Roth IRAs and invested much of the rest. Today, those investments have put me in a great place. I have had no issue paying the loan every month and making monthly contributions to max my Roth. This year, because of my prior Ira investments, USAA contributed $250 to my 2012 IRA, which was a nice perk.

I would recommend the same to anyone now as well as reading some financial books on investment so that you don't make the mistake of withdrawing funds in a market recession without understanding the principles of dollar-cost averaging and long-term growth, etc.

Packer hit the point well on worrying about a doomsday scenario. If it happens, it doesn't matter where you put your money. I'd rather bank on controlling my retirement than worrying about the world financially ending.
 
Packer hit the point well on worrying about a doomsday scenario. If it happens, it doesn't matter where you put your money. I'd rather bank on controlling my retirement than worrying about the world financially ending.

Well, it does actually matter where you'd put it. Commodities baby! Metals.
 
Dave Ramsey

I'm only in high school, but I am taking a personal finance class and it is based off the Dave Ramsey program called Financial Peace University. I'm pretty sure you can buy it on DVD and it tells you everything you need. His videos are very good and he says that 80% of millionaires are first generation rich and that you just need to be smart with your money. He also makes the point to never buy new cars, just buy a two or three year old used reliable car because a new car depreciates a lot over a short period of time. Also never use a credit card, a debit card can do everything a credit card can. He also emphasizes the point to purchase things in cash and to save money for things no matter how much it costs. Also he says you need to have an emergency fund of at least $500 because emergencies are bound to happen and you never know when.
 
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