Financial Advice for Midshipman/cadets

Chicken Fat said:
I am a rising 3/C, and curious if anyone has financial tips or advice for students in rotc?
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Take advantage of the free basic personal financial management information available from the USAA Educational Foundation, an independent non-profit organization which does not mention USAA products or services nor steer you to them. I used their info as a JO back in the 20th century to educate myself. Look at the hamburger menu and explore the entire site.

The basics:
- Don’t spend more than you earn.
- Create a monthly budget to understand what’s coming in and what’s going out, your recurring expenses, etc. Mint.com is a good place to start.
- Think about Needs vs. Wants. You Need to drink water. You Want to drink other things. Plan and budget to take care of your actual Needs first. You can have your Wants too; figure out what you can afford and when, and plan for it. It may take some time. Be disciplined.
- Understand how credit cards work. If you buy something with cash, the money is out of your hand. If you use a debit card, the money is out of your account. If you pay for something electronically, the money comes out. If you write a check, the money is out of your account as soon as your bank processes it. With a credit card, you are taking a mini-loan from the cc company. The vendor gets their money, but nothing comes out of your wallet. Yet. You have a “grace period,” where you don’t owe any interest, and if you pay off your credit card completely each month - CONSIDER THAT MONEY SPENT THE MOMENT YOU USED THE CHARGE CARD (not yelling, just making a vital point you should adopt in your thinking) - you will never pay interest on your credit card bill. Sure you can pay the minimum on the monthly bill and carry the balance to next month, but don’t pat yourself on the back, you are now borrowing that money from the cc company, since they paid the vendor at time of purchase. Look at the interest rate on the card. 18%? 22?% Would you take out a car loan or house mortgage for that amount? This is how cc companies make money, people spending more than they can pay off each month, and paying interest on the carried balance. The cc companies charge the vendor a bit of money for card use admin, but their biggest revenue comes from cardholders forking over interest. Lecture complete - if you use a cc, consider the money spent at that moment. They are a convenient tool, but like all tools, if incorrectly used, they can hurt you.
- Build an emergency fund. Don’t touch it. A ski trip with friends is not an emergency.
- Don’t fall asleep in briefs about the Thrift Savings Program (TSP), the retirement savings program you will be eligible for when commissioned and drawing an O-1 salary. It’s like a 401k plan your parents might have with an employer.

Home | Thrift Savings Plan

www.tsp.gov www.tsp.gov
-Learn about Individual Retirement Accounts (IRA).

Why am I telling you about long-term retirement accounts now? If you start in your late teens/early 20s to put money away to grow for 50 or so years, you will be very happy with yourself. That is a Need! Once you turn off the monthly salary income spigot sometime maybe in your 60s, you need a pile of money to live on for possibly another 20-30 years. Your expenses do not drastically decrease. Between your 20-60/70 age range, you need to be putting money away to cover that end game. Meanwhile, in the middle years, you are buying a house, growing a family, sending them to college, dealing with all those expenses. In the stage you are in now, you’ll be paying for recurring expenses for housing, transportation, food, tech, etc.

I will always publicly thank CAPT Peek, Supply Corps, USN, for driving these lessons home during monthly JO professional development courses back when I was a Navy Ensign in the last century. He told us we would thank him when we were in our last 3 decades on earth, even if he was long gone, if we regularly put away a percentage of our pay, 10-15%, in long-term investment accounts. I will never forget that man, and my financial health owes him a debt.

Paging @AROTC-dad as an actual licensed person in this area, and deferring to other financial professionals here.

You have taken a praise-worthy first step by expressing interest in learning.
 
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I am only posting to stress the importance and quality of the information presented by Capt. MJ. A "like" just wasn't strong enough😎
 
I would echo the advice of Capt MJ.

One area to look into is building a good credit profile. I am not sure how the banks make loans to MSIV / 1/C cadets today, but consider them wisely. They can be a great tool to build a credit rating, but can also start you down the wrong path if you blow the money. Buy a nice used car with the loan, but don't use all the money, so you have some leftover for an emergency fund. Better yet, try to bum a used car off your parents since you got a full scholarship, and then invest the whole loan. Don't buy a new or really nice used car until you make O-2, at the earliest. That way your raise will cover the new car monthly payment. If you work with your parents and use your loan wisely, you may be able to never have to finance a car in your life. I had nobody to help me with money at when I graduated, as my mom was a recent widow, so I paid sticker for a brand new car outside Fort Sill right after commissioning. My college car would have lasted me a few more years for sure. I paid off my last car loan as a O-3 in Afghanistan, right before I got out and just before wedding. We haven't had one almost 20 years.

When investing, don't go with the company that offers free dinners on military installations and takes an upfront load. Check with your cadre before you leave and your parents. Cars and booze is where new officers blow all their cash.
 
Take my internet advice for what it's worth:
  1. Never have a monthly credit card balance. If you charge on a credit card, always pay it off monthly. Carrying a balance is #1 way to insolvency.
  2. Build an emergency fund. This should be an accessible cash fund of 3 to 6 months monthly expenses.
  3. Open and fund a Roth IRA. A Roth is funded with after tax money. When you withdraw it's tax free with some exceptions.
  4. Keep your investment expenses low. Look at fund expense ratios (OEXR: operating expense ratios). Exchange Traded Funds (ETFs) tend to be cheaper than Mutual Funds, but there are other considerations.
  5. Use an advisor. Many will give you unbiased advice. Ask how they get paid. They can be crucial if your spouse is not investment savvy and you become incapacitated. Make sure they know each other.
  6. Do not try to time the market. It's about time in the market, not market timing.
  7. Index funds/ETFs are a great path to wealth building.
  8. Have a will, power of attorney, and end of life directives.
  9. Invest directly and automatically from paycheck.
  10. Rinse and repeat.
 
justdoit19 said:
And bookmark this thread, to refer back to.

ALWAYS find a way to take advantage of ‘free’ company matching investing funds . Always.
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Great point. I thought about adding that, but I don't have any knowledge about military plans. I'm going to have educate myself. 10 days to DD's I-Day. :)
 
Sealion II said:
Great point. I thought about adding that, but I don't have any knowledge about military plans. I'm going to have educate myself. 10 days to DD's I-Day. :)
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While at an SA, they are not eligible to contribute to the Thrift Savngs Plan (TSP) until they are commissioned and drawing O-1 salary. Link is in my post above. Same for ROTC.

Blended Retirement System (BRS) link below shows what is available with defined benefits as well as if they do not stay to statutory retirement. I don’t believe this starts until commissioning either. You have a bit of time to get smart. She will get briefs on it all later on. With luck, she won’t snooze through it, as some of us have been known to do at nom-testable mandatory briefs throughout our careers.

 
Read JL Collins "The Simple Path to Wealth" https://jlcollinsnh.com/ - set up auto payments into index funds each month (for a ROTH and non IRA) and let them be.
Basically, have no debt, buy used cars, and always run the numbers before buying a house to see if it's cheaper to buy or rent.
 
Get a social security account, so no one else steal's your #/login beforehand.

Sign up for at least one of the three credit reporting agencies and check your credit REPORT (and score) at least once a year.

Be vigilant with your passwords.

You will still need to live like a college student to save. I don't believe in these news articles about Spend Now, Save Later! The problem with those articles is that habits won't change - beware of entitlement and lifestyle creep.

I don't believe in learning from your mistakes. Learn from others instead.

Bad examples sometimes make great examples. Like my sister-in-law!

Do a very simple excel sheet that shows the time value of money and compounding, and with the fields you can do a sensitivity analysis! Rows are their age, columns L-R: checking, savings, TreasuryDirect Ibonds, Schwab taxable brokerage, Schwab Roth IRA, TBD 401k, and the 529 plans (actually I am the owner, they are the beneficiaries). Row underneath each is a % return (can be different between account types), row underneath that is annual contributions, and then make the formulas. Very quickly they can see the account sources and what happens over time, with a change of contribution and/or % return.

The "big 5" documents: will, Statutory Durable Power of Attorney, Medical POA, Medical Directives, HIPPA authorization

Start your adult life ORGANIZED. Dropbox, filing and document retention system, etc. You won't be actually organized if you're not organizing.
 
There is so much good advice above. I've taught a Personal Financial Literacy class to high schoolers the past 5 years. I'll share a few things that I've taught them that haven't been covered.
1) Cars depreciate rapidly. They ARE NOT an investment. Consider buying used, saving to buy that used car in full, and then driving it until it dies or the repairs are more than the worth of the car. Rinse and repeat.
2) Real estate is an investment. It appreciates in value. One must have housing. Why not have housing that works for you?
3) Wells Fargo has a credit card that insures your cell phones. There is no need to have expensive phone insurance. Pay your cell bill with the Wells Fargo card automatically insuring all of the cell phones covered on that plan. In addition, pay that card off every month IN FULL. Second benefit is that this can help you with your credit score. There may be a few other cards that still do this as well. Research.
4) Learn how to cook. Dining out is expensive. One can feed themselves and their family for a fraction of the cost of eating at a restaurant. The same is true with coffee. Buy a great blend and make your own. Over a year, you will save a lot of money.
5) My favorite YouTube channel about Personal Finance is: Two Cents
 
This is a contrarian view. And I had several conversations already with DS '26. After graduation and on Active Duty, I advised to go ahead and apply for a VA-Backed Home Loan. I did this when I was a captain (O3) in 2007. Back then a 3-BR in my area was hovering around $450K... then the '08 crash hit, wiping out equity down to $380K. Lots of people bail, I had no choice but to stay put. Fast forward to 2023, homes in Zillow are going for $785K. A fellow officer and his wife (also a military officer) purchased a house in a resort community for $650K, only 4 miles from my house. Today, that house is worth $1.3 mil.
 
Borrow money only to buy assets of appreciating value. In my book, the only assets of appreciating value are (1) education, (2) house.

For everything else, pay cash. And if you can’t pay cash, don’t buy it. Simple as that.

(Aside: If you buy something with a credit card and pay the balance IN FULL, EVERY MONTH, that’s not borrowing. That’s just convenience.)
 
WMTA said:
There is so much good advice above. I've taught a Personal Financial Literacy class to high schoolers the past 5 years. I'll share a few things that I've taught them that haven't been covered.
1) Cars depreciate rapidly. They ARE NOT an investment. Consider buying used, saving to buy that used car in full, and then driving it until it dies or the repairs are more than the worth of the car. Rinse and repeat.
2) Real estate is an investment. It appreciates in value. One must have housing. Why not have housing that works for you?
3) Wells Fargo has a credit card that insures your cell phones. There is no need to have expensive phone insurance. Pay your cell bill with the Wells Fargo card automatically insuring all of the cell phones covered on that plan. In addition, pay that card off every month IN FULL. Second benefit is that this can help you with your credit score. There may be a few other cards that still do this as well. Research.
4) Learn how to cook. Dining out is expensive. One can feed themselves and their family for a fraction of the cost of eating at a restaurant. The same is true with coffee. Buy a great blend and make your own. Over a year, you will save a lot of money.
5) My favorite YouTube channel about Personal Finance is: Two Cents
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Nice Pro-tip.

I would add, NEVER and I mean NEVER EVER carry a credit card balance month to month. Enroll the card in Auto Pay and pay the balance.

Amex and Chase wave annual fees for their high fee deluxe cards for active duty military members, even poor O-1's. They come with loads of benefits including airport lounges, TSA Precheck Fees refunded, excellent travel insurance, etc. The AMEX card was DS's first credit card.

Let me finish with this: NEVER and I mean NEVER EVER carry a credit card balance month to month.
 
Am I allowed to invest my midshipman salary into TSP or do I have to wait until AD? If I can't, does USNA have a 401k or do I have to just invest in a Roth IRA?
 
iskekeirhtj said:
Am I allowed to invest my midshipman salary into TSP or do I have to wait until AD? If I can't, does USNA have a 401k or do I have to just invest in a Roth IRA?
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You are eligible to invest in TSP after commissioning.

TSP is the govt version of a 401k, used by federal civil service and military.

A Roth IRA is an individual, personal investment choice and nothing to do with you being a midshipman, but whether you have earned income. You will be receiving pay from the Navy, so you are eligible to invest in a Roth IRA, abiding by the guidelines that apply to those. Many midshipmen choose to have one of these as a foundation for long-term investing.

Read all the posts from the beginning of the thread; these issues are covered, but it’s good to address them directly.
 
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