Financial Advice For a New 2nd Lt / Ensign

Consider applying for a credit card so that you can establish a credit history. There are a number of SAF threads which discuss preferred cards. This will help eventually when you purchase a home or a vehicle. Only do this, however, if you have the means and discipline to pay off the entire credit card balance every month. The most expensive debt (aside from payday loans) is almost always credit card debt and - even worse - late payment penalties.
 
Completely disagree. Credit cards are not necessary And get too many people in trouble.

No credit card necessary. Pay your bills on time... rent, phone, electric. Save money for what you want to include 15-20% down on your first home. As an officer you can easily find a bank/credit union that will manually underwrite a mortgage. If you want a new car as an O-1 the dealerships will fight over your business, they all know what you are paid monthly and that you are locked into your job for the next xxx years.
 
SF_DAD said:
Completely disagree. Credit cards are not necessary And get too many people in trouble.

No credit card necessary. Pay your bills on time... rent, phone, electric. Save money for what you want to include 15-20% down on your first home. As an officer you can easily find a bank/credit union that will manually underwrite a mortgage. If you want a new car as an O-1 the dealerships will fight over your business, they all know what you are paid monthly and that you are locked into your job for the next xxx years.
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I disagree with you. Yes, credit cards are the easiest things to abuse. However, they are the easiest way to build up credit. I had both my sons apply for credit cards once they hit 18. First, so they have something to use while in college but mainly its the easiest way to build credit. I also put their names on one of my cards. So now instead of their credit card history saying less than 1 year, it says 15 years or so because it takes my info into account. Both my sons have credit ratings anywhere from 750- low 800s. Regardless of whether car dealerships or mortgage companies will fight for their business, in my experience, FICO scores are very important, and the quicker you can build them, the easier your life will be. My O-2 setup his credit card to his monthly balance is paid off every month so he is always at zero. Credit card companies also give lots of benefits to those in the military. My son has a Platinum American card that I would have to pay $500 annually and he pays zero. He gets into almost all the Air Line Lounge Clubs where he gets free food, food drinks and a pleasant place to wait. He gets monthly Uber credits to use, he gets 200 to use on an airline of his choice, they pay for one streaming service, and so on. He gets a lot of benefits for having this card and he pays nothing for it
 
Then we'll have to agree to disagree. Credit cards are extremely useful, critical even, for travel and for emergencies. Most hotel chains require a credit card to hold a reservation. If you have to cancel within a specified period, you will not be charged. This is much easier than if you had used a debit card.

As for emergencies, I remember dropping my ROTC cadet son off at the airport early one summer morning for travel to Fort Benning. He had orders and instructions from his battalion. Except that somehow HR had screwed up, and the airline said he had no valid ticket. He pulled out his credit card and paid for the ticket on the spot. Otherwise, he would have missed the flight and probably lost his coveted slot at Airborne School.

True, it's too easy to get into debt and trouble with credit cards. But as I said in my post above, Only get a credit card if you have the means and discipline to pay off the entire credit card balance every month.
 
Wow, opened the hornets nest!

I can just speak from experience. The military pays very well. A debit card (I have USAA and a local Credit Union) will do everything a credit card will do. The caveat is that you need to have money in the account. FICO score means nothing when you have saved and can show that you make a good/great living in the military. FICO basically shows that you are good at having debt.

I have travelled all over the world... Once your new officer ends up in a position of higher authority they may be entrusted with a government credit card. This is not a personal card and is used only on behalf of the government for things such as travel (Airborne school in a previous post). As a 1LT I was the OIC for a funeral detail and had to pay for 12 hotel rooms and three rental vehicles on my government credit card... but once again it had nothing to do with my FICO or credit rating.

Somehow I have managed to own homes, buy vehicles and travel without a personal credit card. Granted it was quite difficult in the early 90’s, but for the
last 10 years it has been extremely simple. Save a percentage of every paycheck through payroll deduction which will show up on every LES. With the new blended retirement it’s a no-brainer. Keep about 4 months of pay in a money market account just in case... another no-brainer and easy to do after a deployment where there is nowhere to spend your money. Unless you own stock in Visa or MasterCard why would you want to burden your kids with the potential for more debt. What percent of cardholders pay the full balance every month for the entire time they have a card?

No sir, no credit cards for my kids. I have run into plenty of Soldiers (to include Senior Officers and NCO’s) that live paycheck to paycheck due to bad habits revolving around credit. Live within your means.
 
BTW - lounges at the airport are great! The best ones are the USO’s with free food, drinks, wi-fi, computers, recliners, a place to store your bags, and people that always have your back.

Ever wonder how American Express can afford to have lounges at airports? The money came from somewhere.
 
🍿🍿🍿🍿
There are many paths to financial security.
Lively disagreements about which path is best will be around for a long time. Figure out what is most likely to work for you and put in the work.

- Live within your means.

- Know the difference between needs and wants. Water is a need. Other beverages are usually wants.

- Start early and be consistent. Do not put it off until your mid-to-late twenties.

- Have a budget. Respect it.

- Be wary of impulse decisions.

- Take responsibility for your financial wellness, both everyday financial decisions and long-term financial planning. Don’t just assume someone like a future spouse is going to handle that for you. The head-in-sand-too-busy-to-bother approach - do NOT do this.
 
Dad_2024 said:
Live like no one else, so you can live like no one else!
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In moderation. My grandparents saved and pinched pennies for decades. And when they had wealth to do all those things they hadn't spent money on, their health was too poor to travel much. Yes, live within your means. Yes, save for retirement. But don't be the people who live on beans and rice to pay down the car payment or mortgage that you won't have any trouble paying off on schedule.

Ramsey's baby steps are good (except for not paying high interest debts first), but his advice is primarily psychologically based. If you already have the discipline to live within your means, not over-leverage debt, and to save consistently, some of his advice contradicts the most efficient way of doing things and prescribes radical action for relatively minor problems.

Paying loans early feels great, but doesn't always make sense. When I had $5k left on my cadet loan, I thought "oh, I should just pay this now." Then, I ran the numbers, and paying the debt early would have "saved" me $75 in interest, but I would have missed out on making $600-700 by leaving it in my investment account. Carrying the debt to schedule made sense because of two factors 1. My income was very secure. Paying wouldn't be any hardship, and 2. Since the interest rate was so low (1.5%), alternative options had a very high probability of generating higher returns.

So, Dave Ramsey has a 90-95% solution. Following his advice will help most people achieve good to very good results. That said, there are sometimes more efficient ways to make your money work for you. If you want the 1-minute financial plan, he has a really good one. If you don't mind deep diving things, you can modify his plan to be a little better.
 
Dave Ramsey is an entertainer. He has no fiduciary duty towards the people buying Financial Peace or listening to his advice. For something like personal finance including insurance how can you give accurate advice without doing an assessment first?

If you don't think a credit card is a good idea for a young adult or yourself you can also establish credit history with a 36 months secured installment loan (from money in savings) and open up a checking account with a line of credit. For the secured savings loan there usually isn't a credit check or requirement. Set it up to pay it automatically. I did this for a 24 month loan and total it cost me $19 in interest.
For the line of credit there is, someone with descent credit history should open up a join account at a Credit Union with the young adult and then jointly apply for the Line of Credit. You don't have to use it for it to build length of credit history.
They can not think about either one but they will have some established history without a credit card in their pocket. (I told my ds apply for and fund the deposit for a partially secured credit card as soon as he turned 18, I'm not against them, but I understand they may not be a good fit for all.)
 
New Officer Money $ Rules

  1. Save $1000 emergency fund in a Money Market Account
  2. Purchase good used car-not a new one
  3. Save in TSP and ROTH IRA
  4. Don’t build interest on credit cards
  5. After a few years….save for your next car vs getting a loan-then pay cash
  6. Diversify investments with very low fees only ("money doesn't grow on fees")
  7. Don’t sell equities when the market crashes-buy, as they will be on sale
  8. The earlier you save for retirement the easier it is (money grows exponentially)
  9. Study and learn about personal finance
  10. Know your risk tolerance and rebalance once per year
 
I think having a credit card is important. Just don't use it. Keep one for emergencies, or carefully use (and pay off each month) if there is a good rewards plan. I worked in the financial industry most of my career. I will never forget that a customer was in Europe years ago. He only had his debit card to make purchases. There was an encoding error on a check he wrote prior to leaving. His $1,000 check was encoded for $10,000 in error, which made it look like he was completely overdrawn. He was stuck. We were able to give him an emergency increase until the problem was solved, but it made 2 days of misery for him. There's also a chance of a problem with the magnetic strip or chip malfunctioning, or a lost or stolen card... Again, having a backup CC is pretty good insurance when you are away from home.

My best advice for investing? Dollar cost averaging. And start right now. Today or Monday. "Time" is the most important tool in investing.
 
Humey said:
Credit card companies also give lots of benefits to those in the military. My son has a Platinum American card that I would have to pay $500 annually and he pays zero. He gets into almost all the Air Line Lounge Clubs where he gets free food, food drinks and a pleasant place to wait. He gets monthly Uber credits to use, he gets 200 to use on an airline of his choice, they pay for one streaming service, and so on. He gets a lot of benefits for having this card and he pays nothing for it
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This^^^Nothing but this.

My DS has Platinum AMEX and Chase Sapphire and pays nothing for them.

As a side note, buy used cars. Went to visit DS, for his O-3 promotion a couple of years ago. Mrs. cb7893 and I were amused seeing his Honda Accord which he bought with 60k miles parked next the the F150's, Mustangs and BMW's. He upgraded to a Nissan Sentra with about 40k.
 
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SF_DAD said:
If you want a new car as an O-1 the dealerships will fight over your business, they all know what you are paid monthly and that you are locked into your job for the next xxx years.
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The dealership sells the loan to banks, who may or may not fight over the loan.

See above.
 
EDelahanty said:
True, it's too easy to get into debt and trouble with credit cards. But as I said in my post above, Only get a credit card if you have the means and discipline to pay off the entire credit card balance every month.
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This — the demand for fiscal discipline plus the specter of credit failure — is why DS and DD got/get their own credit card upon turning 18.

Yes, there’s temptation to spend beyond their means. That’s the point. Part of adulthood (all of life, actually) is having the discipline to say no. And yes, there’s the possibility that their credit rating will blow up. That’s the point also. They need to feel (and pay) the consequences of making poor decisions.

As young adults, these lessons are fairly inexpensive. Better they learn these lessons now, than later when there’s much more on the line. They should get in the habit of paying for simple things (like gas or clothes) with a credit card and then making that monthly payment — in time, in full!
 
cb7893 said:
This^^^Nothing but this.

My DS has Platinum AMEX and Chase Sapphire and pays nothing for them.

As a side note, buy used cars. Went to visit DS, for his O-3 promotion a couple of years ago. Mrs. cb7893 and I were amused seeing his Honda Accord which he bought with 60k miles parked next the the F150's, Mustangs and BMW's. He upgraded to a Nissan Sentra with about 40k.
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Two great pieces of advice. My son got that card as well. And all of our kids see us buying used (2-4 yrs old) and mileage going over 200k, so they are happy to get used vs. brand new.
 
Humey said:
I disagree with you. Yes, credit cards are the easiest things to abuse. However, they are the easiest way to build up credit. I had both my sons apply for credit cards once they hit 18. First, so they have something to use while in college but mainly its the easiest way to build credit. I also put their names on one of my cards. So now instead of their credit card history saying less than 1 year, it says 15 years or so because it takes my info into account. Both my sons have credit ratings anywhere from 750- low 800s. Regardless of whether car dealerships or mortgage companies will fight for their business, in my experience, FICO scores are very important, and the quicker you can build them, the easier your life will be. My O-2 setup his credit card to his monthly balance is paid off every month so he is always at zero. Credit card companies also give lots of benefits to those in the military. My son has a Platinum American card that I would have to pay $500 annually and he pays zero. He gets into almost all the Air Line Lounge Clubs where he gets free food, food drinks and a pleasant place to wait. He gets monthly Uber credits to use, he gets 200 to use on an airline of his choice, they pay for one streaming service, and so on. He gets a lot of benefits for having this card and he pays nothing for it
Click to expand...
Absolutely agree with this and my son did exactly all that. He loves that American Express Platinum card and he travels often enough that he can make great use of those lounges. Also maxes his Roth every year too.
 
Might as well throw in the VA home loan benefit. No down payment required.
www.va.gov

Eligibility requirements for VA home loan programs | Veterans Affairs

Learn about VA home loan eligibility requirements for a VA direct or VA-backed loan. Find out how to request a Certificate of Eligibility (COE) to show your lender that you qualify based on your service history and duty status. Keep in mind that for a VA-backed home loan, you’ll also need to...
www.va.gov www.va.gov
 
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