If you recently graduated from college and were commissioned as a military officer, congratulations are certainly in order! In addition to being a major life milestone, entering into the officer corps marks an important transition. As such, it may also be the beginning of a new phase of personal finance management. The financial decisions you make during this phase in life have a lasting effect in your life. To set yourself up for future success, here are some smart money habits to start now:
1. Reduce Your Debt as Soon as Possible
Some junior officers have accumulated student loans but do not make an effort to clear them as quickly as possible. Changing how you think about your loans is a good first step. Instead of making minimum payments every month, consider finding ways to reduce your monthly expenditures so you can maximize your monthly loan payments.
2. Take Advantage of Compounding Interest & Start Saving Now
It is surprising to find out that around one-third of young adults between the age of 18 and 24 do not have savings. When making a budget, remember to include savings to both an emergency fund (which you can easily access, such as a savings account at a bank) and a tax qualified plan such as an IRA or the Thrift Savings Plan (TSP). If you're covered by the Blended Retirement System (BRS), make sure you contribute 5% to TSP to get the full government match - you never want to leave money on the table. For a discussion on whether you should contribute to Roth TSP or the pre-tax TSP, click here.
Due to the way compounding works, it is beneficial to save sooner rather than later. Compound earning occurs when earnings accrue to an amount of money which is itself prior earnings. It's the deceivingly simple force that causes wealth to rapidly snowball. Thus, the longer you wait to start saving for retirement, the more you miss out on the benefits of the incredible power of compound earnings.
If your not sure how much you can afford to save or the best ways to invest, now is a great time to talk with a financial planner who can help you develop a plan.
3. Pay Your Bills on Time to Build Solid Credit
Chances are high that, like most people, you will have to rely on a mortgage or car loan to make major purchases. So be conscious of your credit, and focus on paying your bills 100% on time, as that is one of the simplest ways to establish good credit. It does not matter if you intend on taking out a loan in the near future or not. Having good credit history is important, as it affects many major financial occurrences in your life and can also affect your ability to get and maintain a security clearance.
4. Make a Spending Plan
You don't start a military operation without a plan. Why would you spend money without a plan? Making a spending plan does not mean you are stingy, but rather living within your means. Having a spending plan makes you knowledgeable about your finances and prepares you for whatever roadblocks life may present. Making a spending plan and tracking your actual spending also enables you to see exactly where your money is going -- and where it needs to go. With a spending plan, it often becomes clear where you need to tighten your spending. This gives you control over your money.
Being a fresh "butter bar", it is normal to feel overwhelmed by your new financial responsibilities. It is up to you to take charge of your finances by nurturing these simple habits for a financially stable future.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. The information in this material is not intended as investment, tax, or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.