The Right Way to Save

1LT Lila Quintiliani — Tue, 23 Mar 2021 12:07:38 -0400

Military Saves Senior Program Manager

Have you ever wished you knew the “right” way to save?

Well, that was a trick question. The answer is there is no single, correct way to save. There is only the way that works for you, in your own situation.

Here at Military Saves: http://rly.pt/MilitarySaves, we are dedicated to helping the entire military community, including active-duty service members, military families, and veterans build wealth and reduce debt.

How do I get started?

Everything starts with something called the Military Saves Pledge, http://rly.pt/3renCl2, which is a promise to yourself that is the start of a simple saving plan that works. Take the Pledge and then receive short email and text reminders, resources, and tips that will keep you motivated and on track toward your saving goals.

Once you take the Pledge, you’ll become part of an entire community of savers. You can think of us as your accountability buddy.

And right now is a great time to reflect on your finances because April is Military Saves Month, a free annual event where hundreds of organizations come together to encourage the military community to do a financial wellness check in.

Over the course of a month, we’ll cover money-related topics from a relatable, down-to-earth, positive perspective. Savers end the month with tools, resources, and clarity on their current financial situation, new savings goals, and a realistic plan to achieve them.

What if I don’t have enough money to save?

We know that times are tough, and in the current economic environment not everyone feels like they are able to set aside money. But we believe savings is a habit, one you build up over a lifetime.

Even if you can only set aside a few dollars per pay period, it can grow into something meaningful -- an emergency fund, a down payment on a house, or a vacation in Hawaii. At Military Saves we have a saying: Start Small, Think Big.

We believe the most effective way to save is automatically, through an allotment or an automatic transfer of funds through your bank or credit union. Set it and forget it, and before you know it, you will have reached your savings goal. And if you get bonuses, tax refunds, or pay raises, you can add that to your savings account as well.

What is Military Saves?

Military Saves, a participant in the Department of Defense Financial Readiness Network, has been around for almost two decades.

Our research-based program, which is coordinated by the nonprofit Consumer Federation of America, uses the principles of behavioral economics to change savings behavior and motivate financial action.

We are a small team made up of veterans and military spouses. We know how hard it can be to save because we’ve struggled ourselves. My own financial difficulties led me to become an Accredited Financial Counselor (AFC®), and now I get to motivate others on their financial journey, wherever they may be on that long, and sometimes uphill, path.

Visit us at http://rly.pt/MilitarySaves for more information. Follow us on social media and here on RallyPoint.

MilitarySaves

Response by Sgt Private RallyPoint Member made Mar 23 at 2021 1:15 PM

Sgt Private RallyPoint Member — Tue, 23 Mar 2021 13:15:03 -0400

1LT Lila Quintiliani Great website. The military helps to instill discipline. Discipline can help with living beneath your means, saving as much money as possible and investing wisely.

Response by CW3 Kevin Storm made Mar 23 at 2021 2:55 PM

CW3 Kevin Storm — Tue, 23 Mar 2021 14:55:44 -0400

As someone who fell to bad side of the credit monster many years ago and had to work to get out from under the words I can add to this is this. You don't always need brand new, used will get you by. I don't care how attractive that credit card looks, odds are you really don't need it. If you are new service member the only credit you should of even take, is investing in yourself, and that is your education. I didn't say college, that could be taking courses in your given MOS (if you have a trade that can convert), learning computer skills, learning to read, speak another language, learn a trade. New cars, new furniture, or what ever the fade is in electronics you don't need it. Start saving now for your retirement, 20 years will go by fast, and in that 20 the potential to become a TSP Millionaire is there. There are a lot of great programs out there to get ahead, use them.

Response by MAJ Ken Landgren made Mar 30 at 2021 9:00 PM

MAJ Ken Landgren — Tue, 30 Mar 2021 21:00:59 -0400

It is said to pay yourself first like a savings allotment so you can’t touch it.

I also pay a lot more in taxes than I should which means tax a refund around $7000 each year. I know some of you will say there is financial inefficiency going this route, but I don’t care. $7000 puts a smile on my face.
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Now I want to delve into investing:

Build up an emergency savings fund that is very liquid first.

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I would recommend starting with a mutual fund that tracks the S&P 500. Mutual funds give you diversification. Diversification means it is a safer investment than individual stocks. Those are the 500 largest corporations. It generally tracks the stock market in general. Over the long-term the average annual yield is around 10%. The slope is upward. The TSP C invests in the S&P 500.
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There is a Rule of 72 to double your money. Let us say your mutual fund yields 10% annually. You multiply 10X=72. What is the value of X? It is 7.2. It will take you 7.2 years at 10% to double your money.
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Investing in individual stocks is riskier. The rewards can be greater but so can your losses. I would advise you to take the approach in investing individual stocks as am I willing to risk losing money?
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401K or TSP is a good way to build wealth. If your company matches any of your contributions, then that is free money. If you have a Traditional 401K you will see an instant tax benefit. Let's use the example you invest $10,000 annually and you are in the 20% tax bracket. You will not pay taxes on the $10,000.

You will not pay the $2000 on the $10,000 investment. Let's look at the components of the $10,000 investment. It is comprised of the $2000 saved taxes and $8000. Essentially you invest $8000 and the IRS gives you back $2000 in taxes to help you achieve the goal of investing $10,000. You are out of pocket $8000 to make a $10,000 investment.
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Here is some more advice. A few years before retiring and withdrawing from the 401K, transfer your invetments into something very safe like government bonds. You don't want to risk losing money. The last time the market went down 30%, some of the people who were preparing to retire saw their $300,000 investments turn into $210,000. They ended up working longer to build up their retirement funds.
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I suggest you put your money in C and S funds. Both have long-term upward slopes.
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Traditional vs Roth TSP
Traditional = immediate tax relief but pay taxes when you withdraw. Roth = no immediate tax relief but you pay no taxes when you retire and withdraw.
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Allow me to paint the picture for you. After I am done you will want to set your hair on fire.

The matching by the government is dollar for dollar up to 3% of your base salary. Anything past 3% and less than 5% they will match 50 cents on the dollar.

Let's run numbers on a salary of $20,000, Tradional TSp, $3600 you invest a year.

Matching funds: $600 + $200.
Investment: $3600.
Let's say you are in teh 20% tax bracket. You don't pay taxes on $3600 = $720 savings.
What is the total value of your investment to include matching funds for the year? $3600 + $600 + $200 = $4400.
What is your out of pocket cost? $3600 - $720 = $2,880.
Your out of pocket cost of $2,880 is now worth $4400. Your $2,880 investment grew 53% for the year to $4400.

Aint that nice?
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Let's take this one step further. Let's say you invest $4400 every year for 20 years with an average return of 10%. Your total $57,600 out of pocket funds you invest will be worth $252,000 in 20 years.