“A journey of thousand miles begins with a single step.”
The wisdom of the Chinese philosopher Laozi 2500 years ago still rings true today. No matter how daunting a distance or goal may seem, you can never get there until you take the first step towards the goal.
I’m Spencer, an active duty US Air Force officer and writer of the Military Money Manual blog. I am investing to become financially independent by age 40 while serving in the military.
My site focuses on the unique financial advantages US military personnel can enjoy. These benefits include the Thrift Savings Plan (TSP), the Blended Retirement System (BRS), and active duty military credit card benefits companies give. Today, I want to share a few lessons learned on the road to financial independence.
Our Journey from Debt to Abundance
Our journey from six figures of debt to six figures of net worth began with a single step. It continued with 1,486 more days of steps. Each day we inched a little closer to debt freedom, financial independence, and mastering our financial life.
While you are in the hard part of saving for FI and paying down debt, it can seem like a slog. But it’s all worth it when you get over the finish line. When you don’t have debt hanging over your head, it’s much easier to relax and enjoy life.
The pain from the struggle is quickly forgotten. The pleasure of zero debt repayments and stuffing our investment accounts full every paycheck is ongoing.
It took my wife and me 4 years and 41 days from graduating university with $110,000 in combined student loan debt to achieving a $100,000 net worth.
Along the way we learned many important lessons. The three I want to share with you today are:
- Automate the boring bits
- Focus on the Big Wins and don’t sweat the small stuff
- Never stop learning
My wife and I married in 2011. I started recording our net worth on April 1, 2012. On that day, we had a negative $3714 net worth. 2 years later, we crossed the $100,000 positive net worth threshold. Here’s three things we did to make it happen.
Automate the Boring Bits
We automate our financial life. Every time we receive a paycheck on the 1st and 15th of the month (military pay days), we set up automated transfers to split and divide each direct deposit into a dozen checking and savings accounts.
We have an account for utilities like internet, cell phones, and electricity. We set aside money for annual insurance payments like auto and renters’ insurance. We have accounts for Christmas, birthday presents and charitable giving.
Whenever we have an expense from that category, we just pull the money out of the account. If any account gets too full, we spend the money or sweep it into our investments.
We make sure to pay ourselves first. We call it a “marriage premium,” similar to the premium you pay on an insurance policy. It’s an equal allowance we both receive every pay day that can be spent on anything we want.
I tend to spend mine as soon as I get it on premium cycling gear. My wife tends to save hers and buy clothes. It’s a great system that reduces financial stress and arguments. We paid ourselves a marriage premium for the first 7 years of marriage and continue the payment today.
Besides spending, it’s even more important to automate your saving and investing. I contribute 28% of my O-3 (captain) paycheck every month to the TSP. That way I receive my full 5% match every month under the BRS and maximize my $18,500 contribution by the end of the year.
For our Roth IRA accounts, the money comes out of our checking account automatically on the 1st and 15th of the month until the accounts are maxed out. All additional investing is put into our taxable brokerage account at Vanguard. Every paycheck the funds are automatically swept into the taxable account and invested automatically.
We also automatically reinvest dividends for all of our investments. I rebalance my asset allocation once a year if necessary. Otherwise I don’t tinker with my investments at all.
Our index mutual funds just sit in their accounts, growing year to year. I check the balance once a month to update my net worth tracking spreadsheet and otherwise I don’t worry about them at all. Our investments are automated and could be completely hands off for years.
Don’t Sweat the Small Stuff, Focus on Big Wins
The biggest components of the average American budget are housing, food, and transportation. Get these 3 things right and you can afford to have that Starbucks latte every now and again.
For housing, my wife and I have do not have a strict rule. In general, we stay under our Basic Allowance for Housing (BAH) that the military gives us. That has kept our housing expenses relatively low compared to our income.
Housing is all about getting it right for your family. We enjoy having family and friends stay with us when they travel, so we always rent homes with a spare bedroom. Don’t rent or buy too much home and focus on the location relative to the stuff that makes you happy.
For instance, we like homes that are close to base so my commute is fast and close to attractions like bars, restaurants, shops, and grocery stores. We also like to be near parks and outdoor recreational activities. We know these things make us happy, so we focus on location more than square footage.
Food has always been an expensive budget item for us because we love high quality and delicious tasting food. We cook at home most nights a week but we also go out often on the weekends. It’s all about doing what makes you most happy within your means.
For transportation, we used to drive quality used cars to keep costs down. However, we purchased a new car four years ago. We plan to drive it for many years to come. The new vs. used debate really comes down to what style of car you buy and how much you can really save by buying used.
The brands we have stuck to are Mazda, Toyota, and Honda. These cars offer reliability, good gas mileage, and low initial purchase price. The more modern ones are even stylish and have many of the advanced features that used to be on luxury cars only a few years ago, like automatic braking, blind spot monitoring, and back up cameras.
Since my wife works from home, we cut down to a single vehicle years ago. If my wife needs to get around during the day for appointments, there’s Uber or Lyft. Since going to a single vehicle six years ago, it’s never been an issue for us.
Your family situation may differ with both partners working outside the home. Just buy as much car as you need and no more. Don’t buy a new car every few years and buy quality to begin with so you don’t have recurring maintenance issues. Check Consumer Reports before buying anything over $500.
Never Stop Learning
The most important thing that turned our $100,000+ of debt into $100,000 of net worth was education. After completing my initial training for my Air Force job, I had a few weeks before PCSing (moving) to my next assignment.
I took that time to read every personal finance and investing book the library on base had. This was a free education that has literally returned hundreds of thousands of dollars to me over the past 8 years. Learning everything I could about personal finance and financial independence gave me the best return on investment of my time of any activity.
The following books had a massive impact on our debt repayment and net worth growth since graduating college:
- Bogleheads Guide to Investing
- The Four Hour Workweek
- I Will Teach You To Be Rich
- The Little Book of Common Sense Investing
- The Military Guide to Financial Independence and Retirement
- The Millionaire Next Door
- A Random Walk Down Wall Street
- The White Coat Investor
I distilled the lessons from these books and more into a short book titled The Intelligent Military Investor. It’s available on Amazon for a few bucks. It’s primarily for US military personnel, officers and enlisted, who want to get out of debt, build a nest egg, and earn financial independence.
How to Apply These 3 Lessons
I hope you can take these lessons and apply them to your own life. The most important place to start is by reading The Millionaire Next Door to get a sense of what wealth looks like in America. It’s not the flashy bling lifestyle of the Rich Kids of Instagram.
Then, continue reading the other books I recommended above. Automate your finances as much as you can. Make your debt repayment and savings automating but keep your spending not automated. Make it harder for you to spend money and easier to save and invest it.
Finally, right size your housing, food, and transportation expenses. Don’t rent too much house, don’t eat out every night, and don’t drive a new BMW on a lieutenant’s salary.
Our story of 1486 days of paying off debt and building our investments is as boring as it gets. We had no lottery win, no pirate treasure chest found, no hot stock tips, and no Bitcoin. And we still managed to pay off over $100,000 of student loan debt.
That’s life. It’s lived one day at a time. You get to decide what you do with that day.
You can achieve your goals like we did, whether it’s getting out of debt or earning FI in the military. Automate as much as you can, focus on the big wins, and never stop learning. The journey may be long but it begins with a single step.
About the Author:
Spencer writes at the MilitaryMoneyManual.com on the unique advantages military servicemembers have to achieve financial independence (FI). He is an active duty Air Force officer investing for FI by age 40.