17 y/o with no prior financial experience (no job/money to speak of) - What's the #1 thing I should know?

[rugged]

Just signed my contract 2 days ago, and realized I have zero clue what I'm doing. I've heard mentions of the navy federal credit union, and looked into what that all means as much as I can but beyond that I've got nothing. As I'm moving across the country for basic, what's the number one thing I should keep in mind with my finances?

 

[holywalk]

@rugged https://www.reddit.com/r/personalfinance/wiki/commontopics

Follow this. Sub the TSP in anytime you see 401(k). If you do that, starting at 17/18, you will be a multi-millionaire when you retire.

 

[soteriologist]

@holywalk OP, in the sidebar of that sub is something called the Prime Directive. Read it, follow it

 

[rugged]

@holywalk The visual is very helpful, thanks

 

[nothinges]

@rugged Get a CC, any cc, cut it up and never use it. Revisit when you make E5 and have at least 3 months of savings.

Do your banking somewhere that has a HYSA. Capital One or Ally, for example. Neither NFCU nor USAA offer one.

Avoid loans, especially high interest ones (and they'll all be high interest for you because you don't have a credit history, see point 1).

NFCU's only purpose is auto loans for used cars.

Don't use vending machines. Ever.

The base exchanges are ripoffs. Commissary is good though.

Avoid the temptation to eat out. The base galley / mess is basically a $7 salad bar you've already paid for.

15% of gross compensation into Roth TSP / Roth IRA. Include BAH and BAS for your rank / rate as compensation, even if it's not on your LES. If you do the math right then you should be contributing ~25% of base pay minimum.

 

[taylorz27]

@rugged Learn to budget and learn to like it
Don’t buy things you don’t need. Before you buy something ask yourself if it is a want or a need. If it’s a want think about it for at least 24 hours.
Don’t get into credit card debt. Have one card and pay it off monthly.
Stack cash

 

[mustbebornagain]

@rugged First, congrats for having the self-awareness to realize where your knowledge lacking and then also seeking out advice. Use your finances as an additional area in which to develop some discipline.

The #1 thing you should know? Time is your most important financial resource. You’ve got plenty. From the jump, seek to invest at least 5% into your TSP, ideally closer to 15-20% of your income, if you can. My argument would be that a single, Junior enlisted servicemember can. This is where the discipline will come in. If you do this from the start, you’ll never “miss” that money. My preference is Roth TSP, especially for someone so young, but to each their own. The difference between Roth and Traditional is paying taxes now vs later.

In concert with that, seek to minimize your expenses as much as is reasonable and maintain low expenses for as long as is reasonable. There’s little reason to live in severe austerity, but you also can’t adopt a “fuck it, we ball” attitude either. Use resources on base as much as possible to this end.

Past that, if you need a car, a used Toyota or Honda would be your best bet.

Read up on the concept of time value of money and how that relates to personal finance. Peruse r/personalfinance, if you like, as well.

 

[rugged]

@mustbebornagain Gotcha, and thanks for the help. Saving a larger portion of my income at the start sounds like a great idea, especially with (from what I understand) the navy essentially paying for almost everything I need. Looking into Roth and Traditional TSP and learning there's even more I didn't know lol - but thanks for the push in the right direction.

 

[gkenn5]

@rugged Start with baby steps, I’m not exactly sure why everyone wants you to invest into your retirement when they don’t know if your set up financially to be okay right now, should something happen.

Step 1) Create an Emergency Savings Fund of at least 3-6 months of expenses should something happen. This fund is for emergency’s only, do not touch it unless it is.

Step 2) Pay off any debts you may have.

Step 3) Save money up to then purchase a used vehicle in cash, no auto loans, no monthly payments, CASH. Then shop around for the best quotes on insurance, since the vehicle will be paid off completely, go for minimal insurance.

Step 4) Create a savings account for repairs/ better vehicle in the future, this is going to be a long term goal. ( Your goals will change as your life does, EX; a significant other )

Step 5) While completing step 4, feel free to put around 15% of your monthly income towards investments like the TSP, ETFs, or large cap individual stocks such as Coca-Cola ( you could use Robinhood for that )

Keep in mind a large majority of the military doesn’t know what to do with their money, and are in debt up to their ears. Seek professional ADVISORS to help YOU make decisions on your money. Not Reddit. Then take what your advisors recommend with a grain of salt and do your own research. You’ll be alright kid.

 

[nothinges]

@gkenn5

Step 3) Save money up to then purchase a used vehicle in cash, no auto loans, no monthly payments, CASH. Then shop around for the best quotes on insurance, since the vehicle will be paid off completely, go for minimal insurance.

I kind of agree with the first sentence of your post and then you say this.

A 17 year old junior enlisted's monthly expenses are $0. Six months of $0 is still $0.

 

[gkenn5]

@nothinges I’m confused as to what you disagree with, first off it’s there first car, they do not need a new car.And Auto loans are ridiculous, if you can’t afford it in cash, you can’t afford it. No point of paying a bank interest for a liability that will only absolutely decrease in value.

 

[nothinges]

@gkenn5

I’m confused as to what you disagree with,

Reddit is generally way too conservative with emergency funds, and especially so for AD military.

 

[gkenn5]

@nothinges Active Duty or not he needs an emergency fund? Things happen outside of the military, like family emergency’s, death, car crashes, ect.

 

[nothinges]

@gkenn5

family emergency’s, death

$500 plane ticket

car crashes, ect.

Auto insurance. Get collision and rental coverage.

 

[gkenn5]

@nothinges Another point of an emergency savings fund is that it gains interest. You don’t seem to have a good idea of finances recommending insurances over saving’s accounts .

 

[nothinges]

@gkenn5

Another point of an emergency savings fund is that it gains interest.

The interest rate - taxes - inflation results in negative real returns.

US monetary policy doesn't want people hoarding tens of thousands of dollars. So you lose money over time if you do.

I'm not saying not to have an emergency fund. I'm saying most people are packing away 2-3x what they need in it.

 

[gkenn5]

@nothinges Not true that you lose,inflation is at 3 while long term capital gain tax is no higher than 15, you will still earn money if you get taxed, that’s like saying you wouldn’t accept 100 from me if the government was going to take 18. Emergency Savings funds are on an individual basis, you choose whether you want 3-6 months of expenses in it, and having it over saturated is fine, you’re still earning interest. I don’t know where you pulled that U.S monetary policy from, but the government doesn’t care who you loan your money too, or how much you do, so long as they receive the gains tax’s.

 

[nothinges]

@gkenn5 The federal reserve purposefully sets interest rates at a point where it gives zero to slightly negative real returns after taxes to save money.

To do otherwise would bring our economy to a screeching halt as massive amounts of people avoid ever risking investing money.

Yes, the last 6 months you might have made out in a HYSA (assuming you started it 6 months ago since inflation for the two years before that was over 6% per year), but that's why the federal reserve is going to lower interest rates this year.

 

[donttazemebro]

@rugged Open a IRA, start contributing.
Start your TSP immediately. Try to contribute at least what is matched.
Open a HYSA for emergencies.
Open a brokerage account. It's never too early to start learning about investing.
Be frugal.