This is a guest post from Matthew R. Bader, 1st Lt USAF. Be sure to share your thoughts and perhaps express your gratitude for his service to our country in the comments.
I think that I am rich. How can this be you ask? I am in the military, I am only 26 years old, I haven’t started my own business, I don’t work on Wall St, and I am definitely not featured on the cover of Forbes. I consider myself rich because I do not ascribe to the conventional definition of what being rich is. I have become rich while serving only a short time in the military through the combination of one very simple action and a unique mentality surrounding money and wealth. What is this very simple action? Well if I had to put it as simply as possible I would define being rich as “keeping more than you spend.” Wow. Very anticlimactic I know. But if you think about it, when you keep more than you spend you are, in essence, rich. It then becomes a matter of how rich you are and how long it will take to reach your financial goals.
The statement “time is money” represents one of the greatest truths. We really only have one currency and that currency is our time on this earth. If you took all the money you had and cut off all sources of income, how long could you maintain your current lifestyle? Is it 1 year, 2 years, 30 years? When you view money as a personal stockpile of time it changes how you think about it. Your values are reflected in how you spend your time. There are many people who are consumed by making more and more money, only to spend what they make on ‘things’. I like nice things as much as the next guy, but I think the real joy in accumulating wealth is building up that personal stockpile of time to do the things you truly want to do. Like spending more time with family, seeing different parts of the world, giving back something to this earth that stands the test of time, and improving as a person. Can you begin to see the difference between my definition and the conventional definition of being rich?
What does this have to do with the military? Although this outlook is not exclusive to military members, it serves as a crucial foundation that allows them to most effectively exploit the benefits of being in the armed forces while minimizing some of the negative aspects. Being in the military has its unique challenges, but given the recent economic condition of our country I think it is appropriate to first point out one of the greatest benefits. When you are in the military you are basically recession proof. While you watch the unemployment numbers climb on major media outlets your check from Uncle Sam continues to roll in. This is an extraordinary privilege of serving in the military. Couple this benefit with the fact that your salary is projected out through each progression within your career and you have something that your friends in corporate America do not have. You have an unusually secure and steady income that is projected out significantly farther into the future than most other sectors of our economy.
Service men and women can exploit this benefit by creating a realistic budget that allows them to adhere to my definition of being rich: keeping more than you spend. Go to
Mint.com and consolidate all your financial accounts and holdings to start gaining valuable insight into your money behavior trends.
When you have a budget and understand where your money actually goes every month you will be amazed at how easy it is to start keeping more than you spend. Once you keep more than you spend the military compensation makes it very easy to speed up the saving snowball effect to have you keeping more and more. The members of the Armed Forces generally get raises every year. Each year I have been in the military Congress has passed a roughly 3% increase in pay. Couple those raises with your advancement in rank raises and you are getting very consistent increases in income. If you lock in your standard of living to a level that is similar to when you first began creating positive cash flow, it is easy to see how you can continue taking in more and more as the years go by. Once you get past the barrier of keeping more than you spend the only way to go is up.
The benefits surrounding home ownership that are accessible to those in the Armed Forces are another area to take advantage of. Military members aren’t paid a straight salary like many of their civilian counterparts. They are given allowances for housing and subsistence. The key word to focus on is allowance. These allowances are not taxed as income by the government, yet they are recognized by mortgage lenders as income. This allows military members to show very little income to the IRS while still showing enough income to obtain a mortgage to purchase a home. Providing greater access to home ownership while simultaneously minimizing the tax burden is an amazing benefit, but the government went a step further when they passed the Serviceman’s Readjustment Act in 1944. This act was the beginning of a benefit extended to veterans known as the VA loan. The VA loan is a mortgage loan that allows military members to finance up to 100% of the sales price of the home for a fee around 3% which is added to the principle of the loan.
Many people in the military avoid buying a home. With the average military member moving every 2-5 years, they are often bombarded by advice telling them that it is not smart to buy property if you aren’t going to live there for more than 5 years. I couldn’t disagree more. The first thing I did when I got stationed in New Jersey was go out and sign a lease to a nice one bedroom apartment for $1220 per month. After feeling the pain of throwing money away on steep rent for a few months, I threw together a quick excel sheet modeling how much I would spend on rent over the next 3 years assuming the rent did not go up (which rent always does). I was appalled to see that I would be out at least $43,000 over the next three years on rent alone. My thoughts were that I would have to lose more than $43,000 on purchasing a condo to have made a bad decision on buying a home. That was all the reasoning I needed to make the jump.
Many people also fear being so highly leveraged with the VA loan, especially since we have seen the results of being over leveraged in the current economic crisis. My outlook is that you only truly lose (or gain for that matter) when you sell. If the value of your home has decreased don’t sell it until it rises again. We have already emphasized the enhanced job security you enjoy by serving our nation, so why not use it to your advantage with property ownership as well. You have a steady income that allows you to continue paying your mortgage even if the market value has declined. If you are forced to relocate don’t fret, you now have your first investment property. Rent the property and enjoy some additional income. I am not saying to go out and mindlessly purchase a home with zero money down speculating that it’s value will go up. We have seen how that scenario has played out. Do your research and become knowledgeable about buying a home. These are generalized and overly simplified suggestions but the point is that property ownership has incredibly unique tax advantages and wealth building opportunities. Serving in the military opens the door to property ownership. Be smart and take advantage.
Serving in the Armed Forces has its benefits, but it has its disadvantages as well. How can one get the most out of an otherwise unpleasant experience? Now more than ever our servicemen and woman are tested by an incredibly taxing operational tempo overseas. While nothing can compensate for time away from loved ones and friends, it is important to ensure that you are continuing to strive towards meeting your financial goals by building wealth while overseas. When you ask people what their biggest expenses are over a lifetime they typically list their home, cars, and food. However, depending on your income, one of your biggest expenses is likely the tax that you pay to live in this country. The great thing about being deployed is that all your federal income earned in the combat zone is tax free. Legal tax avoidance is always great, but a lesser known and equally impressive program is the Military Savings Deposit Program. Military members deployed in combat zones, qualified hazardous duty locations, or certain contingency operations may deposit all or part of their unallotted pay into a DOD savings account up to $10,000 during a single deployment. Interest accrues on the account at an annual rate of 10% and compounds quarterly. If anyone else knows of anywhere else you can legally get a 10% guaranteed return please let me know! Both of these benefits serve as ways to take a difficult situation that many would perceive as a negative and turn it into a positive for creating wealth.
Obviously there are many other benefits and challenging aspects to serving in our nation’s Armed Forces. There are also numerous programs and other strategies designed to help you navigate through your career to achieve your financial goals. Most notably, the virtually unbeatable retirement benefits for 20 years of service. The point of this post is to encourage you to break away from conventional thinking. Don’t view the military as a chapter in your life where accumulating wealth alludes you. Do not make your service to others mutually exclusive to building your own financial freedom. If you take each unique challenge and situation during your career and view it as an opportunity then your only option is success. Change your mind and keep more than you spend, how rich you become in the military is entirely up to you.
The views expressed in this post in no way are endorsed by or reflect that of the Armed Forces. Matt Bader is currently serving in the Air Force and maintains BadskiBlog which can be found at BadskiBlog.blogspot.com.
image source: Matt Bader
My outlook while I was in the military was very similar. I had a budget and stuck to it. I was able to add to my savings with multiple deployments and serving in tax free zones. When I separated a few years ago, I had a nice nest egg set aside, which was a great benefit for starting out civilian life. The strong financial foundation I developed in the military continues to this day.
Thanks for sharing, Patrick. And thanks for your service.
I recently graduated college and I am now looking into the Air Force. Good to know I can have a business while serving.
Good luck figuring our your options for the future. I considered Air Force once as well. The recruiter was very interested in me — a woman with a degree. And having a degree helps you fast-track to officer training. In the end, though, I got married instead of going into the Air Force (even though I know I could have done both).