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10 Rules for Junior Officers to Live by in Order to Achieve Financial Independence

Managing Your Finances

Financial independence can be defined in a number of ways. However, when most think of financial independence they dream of a time in their lives when they are generating enough income to cover the essential expenses so that they never have to work again. As a military officer your potential future pension will help a lot with financial independence. But there is no guarantee you'll stay around for 20 or more years. So, here are 10 financial rules to follow if you want to achieve full financial independence someday:

1. Earn More Money Than You Spend

You obey this principle by always living below your means. Follow this simple rule, no matter what your income and everything else will fall into place. As your income goes up, so will the extra money for savings and investment. Some things to consider include investing any special pay you receive such as your flight pay instead of using it to live on or increase your investments every time you get promoted.

2. Make a Spending Plan and Stick to It

You cannot live within or below your means without knowing what your expenses are and where you can start cutting. The path to that higher knowledge is a spending plan. Consider using an on-line tool like Mint to track your spending. Compare your planned spending to actual spending and make adjustments. Follow the plan and see how spending discipline can give you an immediate leg up on financial independence.

3. Eliminate Unnecessary Living Expenses

Take a critical look at your spending. Are you spending over $100 for cable TV, for example? Cut the cable and save an extra $1,200 a year. Look everywhere and determine if the expense is a "need" or a "want".

4. Get Into Daily Financial Awareness Habits That Result in Wealth Accumulation

If your daily habits include a stop at the BX/PX or Club for a $5 - $10 lunch, you're spending $100 a month or $1,2000 a year to eat out...for lunch. Bring your lunch to work and save the difference. Look for other ways to save costs and expenses. Keep track of your monthly bills and look for ways to cut down on energy expenses, for example.

5. Concentrate on Being a Great Military Officer

You cannot obey financial rule number one without your income from the Department of Defense. There is a correlation between job satisfaction, promotion and ever-increasing earnings. If you are bored, unchallenged and unhappy with your career, you need to take steps to resolve the matter or you will be stuck in a financial rut.

6. Avoid Money-Making Schemes and Scams

No matter what the slick infomercials and bombastic websites shout out, there is no shortcut to wealth. Beware of guarantees and "fantastic" returns on investments. Remember, "If a deal sounds too good to be true, it probably is."

7. Pay off Your Debts Smartly

Debt is a tool, but often we accumulate too much or too expensive debt. Look hard at your debt load and concentrate on paying off high-interest rate debt first. Make the minimum payment on your other debt and pay as much as possible on the debt with highest interest rate. Once that debt is paid off, roll the amount you paid on the high-interest rate debt to the debt with the next highest interest rate. Remember, your credit rating, which affects your security clearance, is affected by the amount of debt you have and how you pay it off.

8. Pay Your Monthly Credit Card Bill on Time

If you’re carrying a monthly balance on your credit card, you’re swimming upstream in your quest to get out of debt. Pay off your credit card every month.

9. Don't Use Your Home Like an ATM

Paying off your mortgage can move you closer to financial independence. It is important to balance paying off your mortgage with having available "cash". To keep things under control, be careful about refinancing your home to "pull out equity". Once you have growing liquid assets, you can think about paying off your mortgage faster than required.

10. Begin a Savings and Investment Plan

If you are covered by the Blended Retirement System (BRS) then contribute at least 5% of your income to the Thrift Savings Plan (TSP) to get the entire government match. Don't leave money on the table. If you're not covered by BRS or if you are covered by BRS build up a "stash of cash" to cover 3 to 6 months worth of living expenses.  You never know when a big expense might come along. Once you've taken the two steps above look at other investment options including greater contributions to the TSP and/or different IRAs or taxable accounts.

If you follow these rules during your military career, you'll greatly increase the odds that you will reach financial independence...sooner rather than later.


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