Financial Advice For a New 2nd Lt / Ensign

Ramsey's baby steps are easy to understand and meant to be implemented in order. It helps people build financial discipline, especially when they've already found themselves anchored by debt. Most people who call in to his show or read his books, or attend a Financial Peace Univ series have already gone through a self-assessment of sorts, they've come to the realization that continuing to dig isn't helping them get out of the hole.

Money is an emotionally sensitive topic for many. There is life-changing value in being prepared to understand and develop a healthy mindset and attitude toward it. The borrower is ALWAYS a slave to the lender, it works by design in the lender's favor and to the borrower's detriment. When people are young it's easy to make dumb decisions, then end up paying a "stupid tax" on them.

For the youngsters heading into SAs or ROTC grads commissioning with little to no college debt, the siren song to pickup a 600-700 monthly payment for a sweet ride will ring loudly. Save $200 a month the first couple of years, buy a reasonably reliable used car for around 4-5k, keep putting that $200 a month in the bank, in 3-4 yrs, buy a better/nicer car. Create a plan for how to spend money. Those dollars are going to get spent or used in some fashion, much better to decide in advance where and how to spend them. Save money for the big purchases, start saving early (NOW!) for retirement and when you're 45 or so, you'll be able to see how making good early decisions and exercising some discipline pays off. Oh, if I could only go back in time and do it over again!
 
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While I use a debit card for everyday things like going to the supermarket and of course for taking out money from the atm machine, I am against using them for major activity. I am paranoid about debit cards. Debit cards are connected to your checking account. Someone gets their hands on your card or number and they are physically taking money out of your checking account. Yes, the bank will probably reimburse but it takes time. Your credit card gets hacked, your cash is safe and more importantly, it is the credit card company on the hook. Even if there is a dispute between you and the credit card company on who is responsible, time works in your favor and let's be honest, the credit card company has to wait for you to act. With a debit card, you have to wait until the bank decides to fix the situation. That means you may have to wait 4-7 days before the bank gives you back the money and what do you do if they took everything.. Nothing you wait. Happen to me, went to the atm machine to take out money. Wouldnt because it said I went over my daily limit. Called the wife to see if she took out the money and she said no. Went to the bank and I was told someone used my card about 25 minutes away from where I was. The bank kept insisting that it was probably my wife who took it out. My wife never uses the atm and the money was taken out in an area of Los Angeles, that neither my wife nor I would be caught dead in. Bank gave me my 700 after 4 days and a lot of paperwork

Credit is a tool as is credit cards. They are important to have and just as important not to abuse. Like all tools, you can hurt yourself and others with them. Doesnt mean you shouldn't use it. Yes, if you buy everything was cash, FICO scores don't mean much. Want to buy more than one house to use as rentals or investment, you better make sure your FICO score is good. And yes, you also have assets to back it up also.
 
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Humey said:
While I use a debit card for everyday things like going to the supermarket and of course for taking out money from the atm machine, I am against using them for major activity. I am paranoid about debit cards. Debit cards are connected to your checking account. Someone gets their hands on your card or number and they are physically taking money out of your checking account. Yes, the bank will probably reimburse but it takes time. Your credit card gets hacked, your cash is safe and more importantly, it is the credit card company on the hook. Even if there is a dispute between you and the credit card company on who is responsible, time works in your favor and let's be honest, the credit card company has to wait for you to act. With a debit card, you have to wait until the bank decides to fix the situation. That means you may have to wait 4-7 days before the bank gives you back the money and what do you do if they took everything.. Nothing you wait. Happen to me, went to the atm machine to take out money. Wouldnt because it said I went over my daily limit. Called the wife to see if she took out the money and she said no. Went to the bank and I was told someone used my card about 25 minutes away from where I was. The bank kept insisting that it was probably my wife who took it out. My wife never uses the atm and the money was taken out in an area of Los Angeles, that neither my wife nor I would be caught dead in. Bank gave me my 700 after 4 days and a lot of paperwork

Credit is a tool as is credit cards. They are important to have and just as important not to abuse. Like all tools, you can hurt yourself and others with them. Doesnt mean you shouldn't use it. Yes, if you buy everything was cash, FICO scores don't mean much. Want to buy more than one house to use as rentals or investment, you better make sure your FICO score is good. And yes, you also have assets to back it up also.
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The LAWS regarding Credit Cards vs Debit Cards are different.
.
If your wallet is stolen/lost and your Debit Card used, the bank MAY give you back your money or they may not, it is their option
vs
If your wallet is stolen/lost and your Credit Card used, your liability is LIMITED to $50 (per card) but all charges once you notify the bank are not your responsibility so prompt notification can mean zero loss. NOTE: Most banks that I've seen will not charge the $50 at all so liability is 0.

Bottom Line Legal Liability on loss of card - Debit=Full amount in account vs Credit =$50
 
One other thing about credit and debit cards that is not widely known...

Hotels and car rental companies (other companies, too) will do a "pre-authorization" when making a reservation. It's their way of knowing you will have enough available credit on your card when you complete your transaction. It's literally a hold on available credit. Usually, the merchant will remove the held pre-authorized amount when the transaction is completed. But many do not. When they do not reove it, that pre-authorized hold will automatically drop off in about 5-7 days. This applies to credit and debit cards, when they are used as a credit card (signing your signature).

Now imagine you are on a trip. Hotel A might put on $500 hold, then Hotel B. Throw in a few car rentals, and you might unkowingly have a few thousand held on a pre-authorization. If you have a CC with a $10,000 available credit, you probably will never know the difference. But if you are using your debit card and your checking account has a $1,500 balance, you may surprised that your debit card was declined at a restaurant when you know in fact there is plenty of cash in your account, all because of those holds that the merchants never removed. I've seen this scenario countless times while in the industry.

I rarely use my credit card for everyday purchases. But I always use it for hotel, air, and car rental transactions while traveling. I will still use my debit card for dinner and most other small transactions, but I would not want to get stuck "penniless" if that was all I had. Like the commercial says, "Don't leave home without it..."
 
One further point, I actually try to put everything through my American Express Card or American Airlines credit card. One, because then I have to only write out one check. No, I don't like to have automatic payments. More importantly because of the points, you get. I would say when my kids went to college in Indiana and Boston, half of the tickets I bought were free from the points. Now that they are both out of college, the points are building up fast. I went to visit my son in La to help him move. Both my ticket to La and the ticket from N. Dakota to Los Angeles were free because of points.
 
Great info above, 👆👆. A couple of years ago, during prime Christmas shopping time, I logged into our checking account to pay some bills. I noticed a pending charge from Paris (France, not the marine basic paradise). I called the bank, they said it was mine. I said the heck it is, my husband was 10 miles from home and used his card for fuel. I was 25 miles from home and had just bought wine (go figure).

The bank argued. And argued some more. Lots of platitudes and I'm sorries and mentions of policy etc. I went on to point out that I called them alerting them to the fraud, as opposed to them denying a purchase that was so far out of my normal purchasing algorithms. I mean, I've never traveled to Europe! It was preposterous. They deny me buying fuel when I travel across a state line, and I have to authorize it with a time-wasting phone call. But they authorize and supported this???? It was insane.

While on hold, I did a quick google search and found that the charge had been processed in a swanky clothing boutique. Now, I know I'm not a swanky gal, but maybe the bank lady didn't agree. Perhaps she thought my wit, intelligence, and debate skills also implied that I had bourgeois taste in clothing.

I asked that the pending charge be stopped. They said they couldn't do that. I said yes, you can I didn't authorize this very large purchase and it hasn't hard posted. Meanwhile, I'm on hold waiting for a supervisor and I am putting my Sherlock Holmes skills to use. I called this swanky boutique and asked to speak to the manager. I then advised them of the purchase and the amount. She was amazing. She told me the purchase had been paid for over the phone and the blouse was picked up by a male with good taste.

I think I have decent taste, but I would NEVER PAY $2378.00 for an item of clothing--- let alone one blouse. Who does that??????

I fought and fought to get our money back. The bank tried telling me it would require a lengthy dispute. I fought some more. I went as high as I had to go and got the funds back within 24 hours. Had I lost that argument, we would have been out the $2378.00 with no recourse.

The point made earlier about using a card tied to your checking account is very valid. Credit card companies offer far more fraud protection than checking accounts linked to debit cards.

Also, I have had nice resorts put very large pending charges on my debit card without advising me. Pretty shocked to have a $1000.00 pending charge for a Wyndham hotel stay. I didn't arrive with a sorority ready to party. Just little old me. How much damage could I do to a room??? And, those pending charges can take days to drop off. One I had to call to remind them to remove, it took weeks. I can only imagine how many of these 'holds' never drop off, and those who don't manage their accounts closely never notice?

Anyway, I digress. I appreciate this thread. I have copy and pasted several of the tips and emailed to our almost not a plebe, and he has put them in his 'financials' folder to save and review.
 
Heatherg21 said:
Great info above, 👆👆. A couple of years ago, during prime Christmas shopping time, I logged into our checking account to pay some bills. I noticed a pending charge from Paris (France, not the marine basic paradise). I called the bank, they said it was mine. I said the heck it is, my husband was 10 miles from home and used his card for fuel. I was 25 miles from home and had just bought wine (go figure).

The bank argued. And argued some more. Lots of platitudes and I'm sorries and mentions of policy etc. I went on to point out that I called them alerting them to the fraud, as opposed to them denying a purchase that was so far out of my normal purchasing algorithms. I mean, I've never traveled to Europe! It was preposterous. They deny me buying fuel when I travel across a state line, and I have to authorize it with a time-wasting phone call. But they authorize and supported this???? It was insane.

While on hold, I did a quick google search and found that the charge had been processed in a swanky clothing boutique. Now, I know I'm not a swanky gal, but maybe the bank lady didn't agree. Perhaps she thought my wit, intelligence, and debate skills also implied that I had bourgeois taste in clothing.

I asked that the pending charge be stopped. They said they couldn't do that. I said yes, you can I didn't authorize this very large purchase and it hasn't hard posted. Meanwhile, I'm on hold waiting for a supervisor and I am putting my Sherlock Holmes skills to use. I called this swanky boutique and asked to speak to the manager. I then advised them of the purchase and the amount. She was amazing. She told me the purchase had been paid for over the phone and the blouse was picked up by a male with good taste.

I think I have decent taste, but I would NEVER PAY $2378.00 for an item of clothing--- let alone one blouse. Who does that??????

I fought and fought to get our money back. The bank tried telling me it would require a lengthy dispute. I fought some more. I went as high as I had to go and got the funds back within 24 hours. Had I lost that argument, we would have been out the $2378.00 with no recourse.

The point made earlier about using a card tied to your checking account is very valid. Credit card companies offer far more fraud protection than checking accounts linked to debit cards.

Also, I have had nice resorts put very large pending charges on my debit card without advising me. Pretty shocked to have a $1000.00 pending charge for a Wyndham hotel stay. I didn't arrive with a sorority ready to party. Just little old me. How much damage could I do to a room??? And, those pending charges can take days to drop off. One I had to call to remind them to remove, it took weeks. I can only imagine how many of these 'holds' never drop off, and those who don't manage their accounts closely never notice?

Anyway, I digress. I appreciate this thread. I have copy and pasted several of the tips and emailed to our almost not a plebe, and he has put them in his 'financials' folder to save and review.
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I have a reverse story. The younger son studied abroad in the Netherlands. If he used his credit in store it would be accepted. However if he used it for the train or other kiosks, it wouldn't work. I called the credit card company and authorized the use of card anywhere in Europe as he was also traveling. They said from now on, their wont be a problem. The problem continued for the whole semester he was there. There is a term which I cant remember, that when you active this on your card, its becomes Kosher for international use. I must have spoken with ten people 10 times with the Credit card company. Most of the people I spoke with had no idea what I was talking about. The ones who knew what I was talking about either didn't know how to activate it or told me it was activated but it still continue to stop the charge. Most of the time, once I talked to the credit card company, it would allow the charge to go through. However the next day, we would run into the same problem. I would talk to the higher ups at the credit card company and they couldn't figure out why the charges kept stalling. Of course the biggest issue was I was talking to either people in India or even people from the US who had no idea what the issue was. The term which I cant remember is something the university told us about because US credit cards have a known issue in Europe. Again, you can go into any store and there is no problem. I just remember. The term is Verified by Visa. We never got it to work. Most of the time, my son would have his companion pay for the train or whatever and then he would reimburse him. Sometimes it wouldn't work while buying airline tickets online, but then we could call the credit card company and they would allow the charge to go through. Needless to say it was a complete pain in the butt especially with the time difference.
 
I literally have not had or used cash or check in over two years. And my favorite store (my neighborhood liquor store) doesn’t accept cash. My wife doesn’t use cash either
 
Ok, I’m done with the little digs here and there.

Last little bit of advise I received as a junior NCO a few years before OCS...

If you are very good at managing your finances you should always take the full advance pay with every PCS move. Take advantage of the interest free advance of your pay and invest a large portion. The compound interest will really pay off. It’s kind of like managing your taxes so that you break even or pay Uncle Sam a little at the end of every year. The worst thing is that you get money back from taxes... you don’t want to give Uncle Sam the ability to play with your money interest free!
 
We went through a stretch where our credit card got hacked about every eight months, usually after traveling. (Ten charges at department stores all over PA after the trip out there to drop DD at college, for example.) We'd see a charge, call the company and get it cancelled, they'd freeze the card and send out new ones, but it took a week. This happened on and off for four or five years and made a lot of things difficult. So now we have two credit cards and no debit cards. (Actually I think they changed our ATM card to a debit last year, but that's the only time it gets used.) The card with the cash back gets used a lot, and the backup card either does not get used at all (except for the times when the first is suspended while being replaced) or for stable electronic payments like the phone.

It's pretty simple, but not so simple that there's a single answer: when you have discipline debit cards make no sense. When you don't they don't make a lot of sense either, but they're better than credit cards.
 
I am not a financial professional-I’m more dangerous! I think I have a little knowledge, which is way worse. These are my thoughts only; you must be guided by a certified financial planner before doing any large financial moves. The penalties can be severe if not done correctly. For ex., over-contribute to a Roth account, a 10% penalty applies per year until corrected!

I’ve been reading about some financial strategies to address the possible income tax changes proposed by President Biden. These strategies are targeted for the wealthy, but they may apply to those of us who are below the 400K/yr. income threshold (household, not individual I’ve read, but who knows) proposed for increases.

One is to convert your pre-tax IRA into a Roth. This can be done as a full conversation or spread out over several years (For ex., convert the amount that just keeps you under the next higher tax bracket.) There are no income limits when you convert. The biggest issue of course is that you’d have to pay at the current income tax rates on whatever amount you convert. For some of the very wealthy, this may pay to do as the proposed higher rates mean savings by paying at the current income tax rates. But what about the rest of us?

One thought is: What if you convert your pre-tax TSP account into a Roth? From what I’ve read, this is legal to do, but TSP won’t allow you to convert due to increased costs of their bookkeeping involved. However, TSP will do the conversion when you’re separating from government/military service. Again, this can be done either all in one shot or over several years. Again,there are no income limits when you convert. Just an FYI for the “5 & dive” crew as well as those planning to leave service/retiring.

What to do with those pesky 529 Plans? I’m thinking 1st. if one were to put these accounts in your SA grads name, he/she should be able to withdraw the $$ w/o the 10% penalty (This exception is allowed by law as they graduated from a SA.) & convert that into a Roth. Taxes will be due, but hopefully your Grad is at the lowest income level they’ll ever be at & this year may be the lowest rates for a while. Then all of the Roth advantages start! Again be guided by a professional financial advisor.


TSP Roth Conversion | CSRS & FERS Retirees

Understanding the Thrift Savings Plan (TSP) Roth IRA converion process and proceedures.
www.federalretirement.net

www.fedsmith.com

The Time Is Now For Roth Conversions | FedSmith.com

Should you convert your TSP to a Roth TSP or Roth IRA? The author discusses some important considerations.
www.fedsmith.com www.fedsmith.com
 
Wishful said:
I am not a financial professional-I’m more dangerous! I think I have a little knowledge, which is way worse. These are my thoughts only; you must be guided by a certified financial planner before doing any large financial moves. The penalties can be severe if not done correctly. For ex., over-contribute to a Roth account, a 10% penalty applies per year until corrected!

I’ve been reading about some financial strategies to address the possible income tax changes proposed by President Biden. These strategies are targeted for the wealthy, but they may apply to those of us who are below the 400K/yr. income threshold (household, not individual I’ve read, but who knows) proposed for increases.

One is to convert your pre-tax IRA into a Roth. This can be done as a full conversation or spread out over several years (For ex., convert the amount that just keeps you under the next higher tax bracket.) There are no income limits when you convert. The biggest issue of course is that you’d have to pay at the current income tax rates on whatever amount you convert. For some of the very wealthy, this may pay to do as the proposed higher rates mean savings by paying at the current income tax rates. But what about the rest of us?

One thought is: What if you convert your pre-tax TSP account into a Roth? From what I’ve read, this is legal to do, but TSP won’t allow you to convert due to increased costs of their bookkeeping involved. However, TSP will do the conversion when you’re separating from government/military service. Again, this can be done either all in one shot or over several years. Again,there are no income limits when you convert. Just an FYI for the “5 & dive” crew as well as those planning to leave service/retiring.

What to do with those pesky 529 Plans? I’m thinking 1st. if one were to put these accounts in your SA grads name, he/she should be able to withdraw the $$ w/o the 10% penalty (This exception is allowed by law as they graduated from a SA.) & convert that into a Roth. Taxes will be due, but hopefully your Grad is at the lowest income level they’ll ever be at & this year may be the lowest rates for a while. Then all of the Roth advantages start! Again be guided by a professional financial advisor.


TSP Roth Conversion | CSRS & FERS Retirees

Understanding the Thrift Savings Plan (TSP) Roth IRA converion process and proceedures.
www.federalretirement.net

www.fedsmith.com

The Time Is Now For Roth Conversions | FedSmith.com

Should you convert your TSP to a Roth TSP or Roth IRA? The author discusses some important considerations.
www.fedsmith.com www.fedsmith.com
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Converting a regular ira into a Roth is a good strategy. However, I think it depends on how old you are. When you convert, you are basically paying the tax on the whole amount you are converting. So let's say its 100,000 and between fed and state, it will cost you 30,000 in taxes. Like all things retirement, time is the multiplier. So assuming you do that, you need to have enough time and luck to build up your new roth ira so that it pays for the 30,000 you just paid out. So you have 10-20 years before you retire, great, plenty of time to make up that money. Going to retire in 5 years, not a great idea.
 
I'm not trying to start an argument, I have no experience with finances and you do. Dave Ramsey seems to me like he knows what he is talking about.
 
kientructayho said:
I'm not trying to start an argument, I have no experience with finances and you do. Dave Ramsey seems to me like he knows what he is talking about.
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Beware of Ramsey. His advice on spending reduction is good. His investing advice does not hold water. You can search on the internet to find out why.
 
Don't Give Up the Ship said:
Beware of Ramsey. His advice on spending reduction is good. His investing advice does not hold water. You can search on the internet to find out why.
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I think “beware” is a little strong. I don’t necessarily agree with him in every point, but it’s not like he is pushing annuities. While I don’t go to the extreme of avoiding debt that he encourages, I understand his caution. Debt is an issue with Americans. Heck, we encourage teenagers to take on huge debt for worthless under graduate degrees. Starting out your life with a $250,000 loan for a degree in film studies is not a good start to building wealth. Or even starting out with a $30k “cow” loan that you blew on partying.
I’ve seen first hand how having savings helps keep you out of debt. I’ve seen DFAS mess up pay so many times I’ve lost track. Heck, DD just showed up to BOLC and got a whopping $500 on her LES. She’s been on active duty since graduation. Fortunately, she has savings and will be able to take care of the deposit for her apartment and other expenses without using a credit card while she waits for finance to straighten out the mess.
 
Ramsey pushes funds that are high fees and he also pushes his affiliate sellers. I wonder if Ramsey gets a kick back? “ Money doesn’t grow on fees.” Fees flatten the TMV curve.
 
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