Financial Tips for Soldiers

Part I


                Over the years I couldn’t help but to noticed how many soldiers get paid on a Friday, and then they tend to be broke on Monday.  It’ also amazing how soldiers display a tremendous amount of discipline at work, but they lack this attribute with their personal finances.  When I was a private in the 80’s I was surprised by how many soldiers in the barracks lived a paycheck-to-paycheck life style.  The average soldiers I’m describing didn’t have to worry about food, shelter, utilities or health insurance.  For the most part, their income was completely disposable.  In other words, most of these soldiers didn’t have any bills, and they could use their money anyway they pleased.  Looking back, I think it’s a shame that few soldiers during my era saved or invested for the future.  The purpose of this article is to provide good financial advice to any young soldiers who want to learn how to manage their money well.  If I can help only one person I will consider this article a success.


Personal Finance is Incredibly Simple:

                You don’t have to be overly intelligent to become financially secure.  In contrast, personal finance largely requires discipline.  If you follow the 5 simple pieces of advice I’m providing below, you will break free from the cycle of living paycheck-to-paycheck:


  1. Dedicate 10% of your income for investing purposes.
  2. Dedicate 10% of your income to an emergency plan.
  3. Have your bank set up a direct deposit plan that will automatically send funds to your two 10% plans.
  4. If you are good at saving money you might want to consider the option of making annual contributions to a 529 Plan (Education Savings Plan) or Roth IRA (Individual Retirement Account).  Later in this article I will further discuss what is an IRA or 529 Plan.
  5. You need to know how to budget well, pay your debt promptly, and ensure your credit history remains spotless.


Your 10% Investing Plan:

                Many people claim it takes money to make money, and they’re absolutely right.  You need money to make a down payment on real estate, or to start a business, or to accumulate other forms of wealth.  All of this becomes possible when you begin to save money and invest it wiselyIf you religiously save 10% of your income, and you ONLY use it for investing purposes you will put yourself on the path to financial success.  It’s critically important that you save 10% of your income and never spend it on depreciating items such as cars, boats, furniture, vacations or any other type of luxury items.  This money should be strictly used for appreciating financial assets such as no load mutual funds, index funds or income real estate.  I will go into further depth about various investments such as mutual and index funds in my next article.  For the present moment, all you need to know is personal finance starts with saving, and you must save 10% of your income that’s strictly set aside for investing purposes.


Your 10% Emergency Plan:

                One of the reason why many soldiers live paycheck-to-paycheck stems from the fact that they’re more reactive to financial matters rather than proactive.  They are not prepared for financial emergencies such as vehicle maintenance, broken down water heaters, losing expensive TA-50, or they don’t have funds set aside to prepare for military schools such as WLC.  All of these problems could be easily resolved with a 10% emergency fund.  If you set aside money for emergencies it benefits you in 2 ways.  First, you will have access to money when an emergency arises, and you don’t have to resort to high interest loans, or hock your personal items at a pawn shop.  Second, an emergency fund reduces the likeliness that you will take money out of your 10% investing plan.  Remember you never want to touch your investment plan, and a good emergency plan will ensure this never has to happen.  When an unforeseen event occurs; as they always do, you will always have adequate money you can tap into.  In my next article I will discuss what types of investments are ideal for emergency funds.


Direct Deposit:

                There’s an old saying that goes “Out of sight, out of mind,” and this is very true.  If you automatically have your money wired into your 10% investing and emergency funds you will be more likely to follow through with your financial strategy.  The key to this strategy is to take money out of your hands.  The less access you have to money, the less likely you will spend it.  It takes time to adapt to the lifestyle I’m describing, but you will eventually become used to living on 80% of your income, and you won’t even miss the money.  This can easily become a reality if you use direct depositing.


529 Plans and Individual Retirement Accounts:

                If you have no problem saving money, and you are future minded, you may want to put money into these types of investments.  529 Plans are designed to save money for higher education, and Individual Retirement Accounts (IRAs) are intended for retirement purposes.  These types of investments have several benefits.  First, it takes money out of your hands so you won’t spend it.  Second, it helps you prepare for your children’s college education. Third, it helps you prepare for your own retirement.  Finally, it can reduce your taxable income by deferring or postponing tax payments.  Worded differently, it can reduce how much money you need to pay to the government in taxes.


                It should be noted that these investments have several draw backs.  First, you can’t touch IRA funds until you are 59 ½ years old.  If you take back these funds prematurely you will face heavy early with drawl penalties.  Second, if you take the money early you will be required to pay deferred taxes that would increase your taxable income.  In other words, you might have to pay more taxes.  Third, you can only use 529 funds for education purposes.  Finally, you might need this money to purchase real estate or to start a business in the future. 


                Here’s the bottom line, young soldiers need to keep in mind 529 and IRA plans are long term investments.  In the mind of the average soldier ….it’s really long!  Therefore, only invest money you don’t need in these types of investments.  To be completely honest with you, the vast majority young lower enlisted soldier probably wouldn’t be interested in 529 and IRA Plans.  The message I’m trying to communicate here is these types of long term investments are more suited to military families who have children.




                The information that I’m currently providing is the first of 4 articles.  In my upcoming articles I will discuss the details of budgeting more effectively.  For the present moment all you need to know is that it’s critical that you perform monthly budgeting.  In most cases, once you set up a budget it requires little time and effort to implement it.  This is especially true if you use direct depositing to pay your fixed expenses.  Once again, I will go into the finer details about budgeting later, and it will be easy to understand.  For the time being, you need to know budgeting is important to maintain your 10% investing and emergency plans.  It’s also important in maintaining a healthy credit history.



                 As I said before, you don’t need a PHD to excel at personal finance.  In many respects managing your money is easy, but it require patients, persistence and discipline.  If you follow the 5 financial strategies I have provided in this article, you will have no problem breaking the vicious cycle of financial hardship.  If you combined these 5 strategies with other investing principles you will eventually become to a point where you never have to worry about money.  Since I don’t get your expectation up too high I will confess that it will 2 or 3 decades to achieve the level of financial independence I’m describing, but I promise that it’s a realistic goal.  Between your military retirement and personal investments you can live happily ever after


In my next article I will discuss what investment opportunities are available to you.  I will briefly talk about mutual and index funds.  I will also address stocks, bonds and real estate.  As I do this you need to understand I’m only providing a small sample of the information you will need to become financially successful.  In some respects, I am merely trying to whet your appitite for more information.  If you find my information interesting I will encourage you to visit your library or book store, and expand your financial knowledge.  I will also provide you with a list of recommended books and authors that can better assist you.  For the time being just keep in mind that you don’t have to live in financial hardship.  There’s an easy way out if you only gather information, and apply it on a consistent basis.  I’m being completely honest when I say personal finance is easy to understand.  The only thing finance requires that makes it difficult is discipline, but you as a soldier should have an ample supply of it.  Now all you need to do is to use this attribute in new ways so it benefits your life.

For reference here are links to my other posts on Financial Tips for soldiers:

-          Part I

-          Part II

-          Part III 

-          Part IV

-          Part V





William G. McKinney

Bradley’s Military Enterprises