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Step 1: Discipline Yourself to Save

Military Money Strategy does not provide personal investment advice and we are not acting in the capacity of qualified licensed investment advisors.

Why Save Money?

A military retirement scene on a base beach in Hawaii

Even early on in your service career, savings can provide a number of key benefits. It acts as a cushion against unexpected costs and debt exposure. It provides us a nest egg to eventually draw against in retirement. But from another viewpoint, it also serves to condition us for living below and even within our means; something that's become alarmingly uncommon across the developed world due to dangerous spending habits with disastrous consequences.

Unless we serve for 40 years, our pensions are going to be a fraction of the base pay we were getting and housing allowance (BAH) goes away. The earlier we train ourselves to live below our means, the easier it will be to absorb that inevitable pay cut once we begin pulling our pensions. Not to mention, diligent savings gives us a nest egg to draw from once we get to FIRE. Your pension plus your savings nest egg, minus the above-average savings allocations you were making while on active duty, coupled with a below-your-means lifestyle may bring you to FIRE sooner than you think.

If you're thinking "well, I'll just find a job to bridge my pay gap in retirement", that's just not what FIRE is all about. As mentioned, FIRE is about living your life on your own terms. Boss wants you to work on a day off, too bad. You get laid off and your pay gap returns, too bad. Getting relocated to another part of the country you don't want to go to, too bad. Achieving FIRE not only gives us more options, but it also gives us that most sacred of resources: time.

It was 1998 and I, an E3 at the time, was getting ready to go on my first deployment the following morning. Our squadron flew to Norfolk Naval Station to embark on the USS EISENHOWER and a bunch of my squadron mates were meeting up at the Applebee's on base for a going-away dinner. I walked from the ship to the Navy Exchange to hit the ATM. When I checked my balance, there was $7 and some change left in my checking account and the $5 minimum in my savings account. Needless to say, I couldn't pull any money out as there was a $20 minimum withdrawal. So I shuffled sadly over to Applebee's and bought a sweet tea with the couple bucks I had in my wallet. Some of my friends let me grab some of their nachos. What a going away dinner! I thought never again and my FIRE mission began at that point.

When you develop the discipline to save, you’ll find it easier and even more desirable to set aside money for retirement and other goals.
 

An aircraft carrier Image by Michael Afonso

Who Needs to Save?

It's never too early and it's never too late to start saving. The most junior E1 all the way to the Chairman of the Joints Chiefs of Staff should be socking some money away each and every payday. If I could do it all over again, I would have saved some of my paychecks from basic training instead of blowing my boot camp savings on some cheesy sunglasses, expensive jeans, and meals out.  That would have been a good start!

Saving should be a priority for everyone, no matter their age or income level. It's important to save for the future and for unexpected expenses that could pop up along the way. This is especially true for members of the military, who face frequent deployments and moves to new locations, as well as extended periods separated from family and friends. Saving money can help make these transitions easier.

Finally, saving is important for retirement. For those who want to retire in the military, they should start saving early to maximize their benefits and ensure that they have enough money saved up when they do decide to retire.  Even if you don't plan on retiring from the military, it's still important to save for retirement since Social Security benefits won't be enough for most people.  Having a nest egg set aside will give you peace of mind in your later years. 

No matter what your age or income level, it's never too early or too late to start saving! It can help you get through tough times, make transitions easier and provide financial stability during and after service in the US Military.
 

A person making a military pay budget

Budgeting

Budgeting is key to reaching your savings goal. Creating a budget and tracking your expenses can help you determine where your money goes each month. This will also help identify areas of excess spending that can be eliminated or reduced. Moreover, understanding your fixed and variable expenses as well as income sources on a monthly basis will give you insight into how much you have available for savings each month. There are many ways to categorize expenses. I like to break them down into three buckets:

 

  • Critical Expenses

  • Essential Expenses

  • Desirable Expenses

Person saving money at the Military Commissary

Critical Expenses

Critical expenses are those that must be paid each month in order to meet our basic needs of living such as mortgage or rent payments, utilities, and food.

Also included in critical expenses are those expenses that are necessary to operate in the military such as uniforms, to also include uniform maintenance and haircuts. These must be given priority over any desirable expenses and even your monthly savings. However, just because they are critical doesn't mean they can't be reduced and/or purchased smartly. 

Examples of Critical Expenses

  • Rent/Mortgage

  • Food/Personal care items

  • Childcare

  • Uniforms

  • Utilities (gas, electric, water)

  • Health/Life Insurance


Why not use your savvy shopping skills to score big savings on food staples? Take advantage of coupons and sales and stock up when prices are low. For example, if you come across a long shelf-life item that's on sale for 40% off, you could purchase a two-year supply and essentially knock 40% off your grocery budget for that one particular item. Repeat over numerous items and your savings will really add up. Are you utilizing the commissary for your groceries? Per Military One-Source, shoppers save 25% on average using the Commissary.


If you plan to rent, are you looking for something to fit your needs, or your wants? Let's say you're going somewhere for a three-year tour. You're married with no kids, but plan to have a child while you're at that duty station. A two bedroom would be fine. Are your extra monthly payments worth it to have a place with extra rooms for a guest room, or a office, or a game room? Is an extra $750-$1,000 per month worth it to live in a trendy area? At the time of writing (Feb 2023), the average rent increase per extra bedroom number in San Diego was just over $500 per month. On a three-year tour, we're looking at an extra $18,000 in rent for every extra bedroom we get. You can only answer this, but is that extra guest room, office, and/or game room worth it?

If you plan on buying a property, then some of these above options may make sense for resale value as well as future rental income; however, you should always consult a financial planner and real estate agent before making a purchase.
 

A fast car that costs a lot of money

Essential Expenses

Essential expenses may not be as pressing as critical ones, but they are still necessary and mustn't go overlooked.

To optimize these essential expense costs we should regularly challenge them and ask the question if alternatives exist that can reduce their expense. Being aware of our spending habits is an important part of budgeting wisely.

Examples of Essential Expenses

  • Transportation (car/insurance/gas/public transit)

  • Smart Phone/Cellular Plan

  • Education

  • Internet

  • Clothing

  • Gym membership

 

When buying a car, do you go for a brand-new car off the lot or a certified pre-owned vehicle that has 20,000 miles but costs 60% of the price? On a $30,000 new car price, that could equate to a savings of $12,000! Additionally, what type of car do you buy? Do you go for form over function? Would you rather portray wealth than actually attain wealth?

Clothing would fall into this category; do you need a $90 hoodie when a $35 option would work just as well (if not better)? Also in this bucket would be a costly gym membership. Yes, we have to maintain peak athletic condition while on active duty, but won't the free base gym suffice? Are you keeping up with looks and trends and purchasing the newest smartphones at each release? Or would you be happy with an older model at 60% of the cost?

 

It's important to be mindful of essential expenses as they can have a significant impact on personal finances. Taking the time to compare prices and alternative options can lead to substantial savings over time. When making decisions with regards to these essential expenses, ask yourself if there are more cost-effective alternatives that you could take advantage of. By doing this regularly, you will ensure that your budgeting is optimized and you will benefit from greater financial security in the long run.

A woman holding a giant cup of coffee

Desirable Expenses

Desirable expenses are those things that are really nice to have, but we can easily do without.

Am I asking you to cut all of your desirable expenses? No, but I am asking you to look at each one with a critical eye.

 

Examples of Desirable Expenses

 

  • Gifts 

  • Entertainment

  • Eating Out/Coffee

  • Alcohol

  • Gambling

  • Tobacco

  • Subscriptions/Streaming Services

  • Vacations

  • Beauty Treatments

  • Gadgets

  • Home Décor

  • Car Upgrades

  • Food Delivery

  • Ride Sharing

 

When considering one of these desirable expenses, ask yourself if you really need it or if you can find an alternative. For example, if you want to go on vacation, consider alternate destinations that are cheaper and more affordable. Alternatively, look for ways to save money while still having fun; stay in a cabin instead of a hotel, use public transportation instead of taking ride-shares everywhere, and cook meals at home.

 

For gifts and entertainment expenses, think about creative ideas that don't necessitate spending large amounts of money; make homemade cards instead of buying expensive greeting cards or have game nights with friends as opposed to going out for drinks. Even something small like opting for coffee from the store instead of a specialty coffee shop can make a difference in the long-run.

 

Desirable expenses are nice to have, but they are not necessary and should be evaluated carefully to ensure that you don't spend too much money on them. Consider how much you're spending, how often you're spending it and if there's an alternative that can help lessen the cost burden. You'll find that by taking this approach your budget will thank you for it!

Sample Budgets

Check out our blog on budgeting and savings for example budgets in real-time. Download the Military Money Strategy sample budget on Excel or PDF.

Fillable Excel Budget

Click File to Download

Manual PDF Budget

Click File to Download

Reasons for an emergency fund

Emergency Fund

Having an emergency fund in place provides greater security for your future. I get asked all the time if $1,000 is a good emergency fund, $5,000, $100,000; and the answer is that it depends on individual needs and expenses. Another factor is the time it's going to take you to rebound.

 

I like to look at an emergency fund in terms of paycheck time; i.e. how many paychecks, or months, do I need to cover in case something goes awry? And, there are a few schools of thought on how long an emergency fund should last you that range from 3-months of expenses all the way to a couple of years' worth. In addition to adding months' of expenses to your emergency fund, you should also consider unexpected expenses that may crop up such as vehicle repairs, appliance replacement, emergency leave, or veterinary care. 

 

Emergency funds don't have to be complicated and can be relatively easy to maintain. All it takes is a few simple steps including setting aside a small amount each month, using an online savings account for access, and tracking your spending to make sure you're on track with your goals. It's also important to remember that emergency funds are not the same as retirement savings; they should only be used in dire circumstances and be replenished when possible.

 

Creating an emergency fund varies widely from person-to-person and you should sit down with either your Command Financial Specialist or a Certified Financial Planner to discuss what the right number is for your individual needs.

Savings Goals

Dollars for personal savings goals

Unfortunately, in the United States the personal savings rate has been in a downward trend since the late 1950's. In the 1960's, the average savings rate was 11.20%; for 2022, it was 3.31%. In the two years leading up to the Great Recession, the savings rate was 3.45%- two years before that period it was . During the Great Recession, the savings rate increased to 5.08%. Bottom line, the time to start savings should not be during financial upheaval!

A chart showing the United States personal savings rate for the last 60+ years

US Personal Savings Rate data collected from the Federal Reserve Bank of St. Louis, Federal Reserve Economic Data division https://fred.stlouisfed.org/series/PSAVERT

As you can see from the chart above, we've been in a slow, steady decline since the 60's as we've turned from a nation of savers to a nation of spenders. When you take out the savings rate outliers of the pandemic when no one was really going anywhere, that downward trend becomes even steeper.

A chart showing the personal savings rate in the United States adjusted to exclude COVID restriction effects

US Personal Savings Rate with the period of March 2022 to May 2021 flatlined to account for the COVID-19 pandemic (stimulus, travel restrictions, etc...)

What should your savings rate be? Only you and a financial planner can figure out what's best for your own unique position. What I can tell you is that it should almost always be more than 0% and it should almost never be less than that by racking up credit card debt.

I tried really hard to hit a 50% savings rate (that included principal payments to my mortgage as it was building real estate equity). However, by no means did I start there right away. It took years and years and years to finally reach that number. I never really increased my spending that much when I got a promotion and that helped. Also using tidbits of knowledge gained through the years helped optimize my budget.

Saving money should be a priority no matter the economic climate. While it might take time to get used to increasing your savings rate, doing so can set you up for long-term financial security and stability. It is important to remember that everyone’s financial situation is different - work with a financial planner or advisor to determine what kind of savings rate makes sense in your unique circumstances.

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Savings Enables Investment

Finally, saving allows you to build wealth, which gives you options later on in life. Even if FIRE isn’t something you want to pursue immediately, saving now will ensure that when it comes time to retire or take time off, you have the means to do so without worrying about money.

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