Photo by Sean Locke

Millionaire in the military

It wasn’t that long ago the TV show “Who Wants to be a Millionaire?” gripped the nation – even the Montanaro home. We all watched, hoping to share in the excitement of someone reaching that financial milestone in one night. But barring a lotto win or a miracle game show appearance (just say “DEAL”), is becoming a millionaire while serving your nation an attainable goal? I’d say yes. But you must start early.

In the interest of full and fair disclosure, I will tell you that I’ll hit 20 years of service in May and we’ve still got some work to do. But looking back, I made decisions and choices that certainly didn’t help the cause. So, this month our discussion will be about the good habits that may put you on the road to a seven-figure net worth.

First, let’s look at the goal. To steal from a popular tune, a million dollars ain’t as good as it once was. According to the Bureau of Labor statistics I’d need over $2 million to have the same purchasing power $1 million would have given me when I entered the service in the mid-1980s. The point of this rambling is not to demonstrate that I’m old, but, rather, to let you know you’ll need a lot more in the future to buy the same lifestyle $1 million represents today. That’s the downside of inflation.

What’s it take? Well, if we assume an 8 percent return on your investments over a 26-year military career, you’ll have to start by saving $10,000 per year and increasing the savings by 3 percent each year to reach $1,000,000 by the time your military career is completed. For an E-5, this equates to over 35 percent of base pay – probably not feasible. For an O-2 it’s around 20 percent – definitely a possibility. If you’re a dual-income family, the numbers are obviously a bit more manageable. Even if you can’t kick off with $10,000 per year, if you include the pay raises that come with your annual COLAs and promotions there is definitely hope (see below).

Let’s focus on success. Here are four tips that could potentially put you on the path to success no matter what your financial goal:

Start with a spending plan. If you’re already saving that $10,000 (or more) a year, you can skip this step – you’re in good shape. Otherwise, you need to map out where your money goes each month. What expenses can be cut to free up more money for investing? The usual suspects are eating out, entertainment and communication. Trust me – I’ve counseled hundreds of military families on where to save money in the budget and know these are areas that can usually be trimmed back. If you consistently spend less than you bring in and are able to save you will avoid one of the top roadblocks on the road to our goal: credit card debt.

Drive it till the wheels fall off. We love our cars. I’d get on my high horse and tell you to buy a used car, but that would a bit disingenuous (it’s been 20 years since I drove a used car). But I’ll say this: buy a reliable, economical vehicle and drive it for 150,000-200,000 miles. Although, I admit I’ve bought new cars, I can honestly say I drove my last two cars a total of 330,000 miles. The car payments you don’t make can make a big difference on the road to a million dollars.

Live larger and save larger. The idea here is to take a significant bite of each pay raise – say 50 or 75 percent — and increase what you invest (this means promotions, COLAs, etc. too). Even though you’re increasing your savings, it leaves half of your pay increases to improve your quality of life. If one of you jumps back into the workforce, use this same rule. Talk about building momentum.

Put it on auto-pilot. I say this all the time. If you have a system which minimizes the effort required to invest, you’re a lot more likely to be successful. Most folks on the brink of retirement typically have the majority of their retirement savings in an employer plan. Why? Well, one reason is that over the years their contributions were payroll deductions that took no effort — they happened (and automatically increased with pay raises). So, if you haven’t already started, consider setting up a TSP contribution. If you start with 3 or 4 percent, you’re on your way and can easily increase it later using myPay on the DFAS website. Also you may want to think about an automatic investment plan using Roth IRAs for both of you. Get the programs started and then it is easy to increase.

When I was a 22-year-old lieutenant I can remember building a spreadsheet to chart my projected investment portfolio growth. The path to $1 million was pretty clear. So, incorporate these habits and put yourself on the right course.

Systematic investment plans do not guarantee a profit or protect against loss in declining markets.

This material is for informational purposes. Consider your own financial circumstances carefully before making a decision and consult with your tax, legal or estate planning professional.

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