Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
🚫 Top 10 Money Mistakes Young Adults Make | Financial Tips with Rick Heyse ⚓
466 Plays8 months ago
Host David Baughier and guest Rick Heyse, a soon-to-be retired military officer with a passion for financial planning, explain the crucial "money mistakes" that young adults often make.
🆓 Free Money Course: https://www.fiology.com/free-fiology-workbook/
This podcast is packed with actionable "money management tips for young adults" and is ideal for anyone starting their financial journey or seeking to improve their budgeting skills.
Top 10 Money Mistakes Discussed:
- Not contributing to their Thrift Savings Plan (TSP)
- Not opening a Roth IRA
- Excessive disposable income spending
- Buying an expensive car
- Buying expensive recreational toys
- Co-signing loans/leases
- Loaning money to family and friends
- Neglecting adequate insurance
- Lack of knowledge about credit score
- Ignoring medical and other benefits
💡 What You'll Learn:
- Essential tips on managing "money for young adults" and creating a robust financial foundation.
- Strategies for effective "money young" management, including insights on TSPs, Roth IRAs, and common financial pitfalls.
- Practical insights on budgeting, saving, and investing for long-term financial well-being.
📚 Recommended Reading:
Explore "The Psychology of Money" for deeper understanding of the psychological factors that influence financial behavior.
Amazon Link: https://a.co/d/hH79NSa
🔗 Resource Links:
TSP.gov: https://www.tsp.gov/
MyPay Website: https://mypay.dfas.mil/
VA Benefits: https://benefits.va.gov/benefits/
Free Annual Credit Report: https://www.annualcreditreport.com/index.action
Time Value of Money: https://www.fiology.com/compound-interest-can-make-you-rich/
👥 Target Audience:
This podcast is essential for young adults, military members, and anyone interested in enhancing their financial literacy and securing their financial future.
Don’t forget to like, subscribe, and share this podcast! Drop your questions or topics you'd like us to cover in future episodes in the comments below!
#FinancialFauxPas #MoneyManagement #PersonalFinance #Investing #RetirementPlanning #MilitaryFinance #CreditManagement #Insurance
Recommended
Transcript
Introduction to Financial Pitfalls for Young Professionals
00:00:00
Speaker
Today we talk about the 10 most common financial pitfalls of young professionals and how to avoid them. Here we
00:00:12
Speaker
Welcome to the Forget About Money podcast, where we encourage you to take action today so that you can focus on what matters most to you. Today, our guest is Rick Hayes. Rick was my office mate at the Joint Forces Staff College. We were instructors for a theater strategic planning course. And we've probably spent, I don't know, four to six hours a day in an office together. And he is also a Naval officer.
00:00:40
Speaker
So I thought he would be the perfect guest to come on and talk about the 10 money mistakes young military members make. And while this is, and while we're military or ex-military, I'm retired, he is on his way to retirement. This conversation is not, doesn't just apply to military members.
00:01:02
Speaker
It could be any young adult who is coming into a career, who's coming into money, substantial money, consistent money for the first time in their lives. So today we're gonna talk about 10 money mistakes young adults make. And I'll go through the list right now.
Common Financial Mistakes and Military Insights
00:01:17
Speaker
Number one, not contributing to their TSP.
00:01:20
Speaker
for the civilian counterparts, that's your 401k, not opening a Roth IRA, excessive disposable income spending, buying an expensive car, buying expensive recreational toys, co-signing loans and leases, loaning money to friends and family, lack of knowledge about credit scores, neglecting adequate insurance, and ignoring medical and other benefits.
00:01:45
Speaker
Some of this is going to be specifically military, but you all might also be in a situation where this applies to you. So, Rick, welcome to the show. Well, thank you, David. And that introduction of what we're doing today, thanks for having me on the show. As you said, yeah, 22 years in Navy service that I'm wrapping up right now and moving on to a new career.
00:02:08
Speaker
but definitely have learned a lot of lessons over the years and everything else of what to do, what not to do in the military.
00:02:16
Speaker
I flew for 16 years before I joined or ventured into the staff world and whatnot. But you know, I've enjoyed my time in that world and after the Navy here, we'll see what the future brings to me. Finance is definitely one of those subjects that I always like talking about. I know you always like talking about. So it's an interesting topic to me, even though I know it's very boring and dry to many other people.
00:02:44
Speaker
You're kind of like stealth stealthy with your money knowledge because even though you knew like I'm I'm out there people know it like almost every conversation. Unfortunately, it probably leads to some kind of like value discussion and usually that leads to kind of finances.
00:03:01
Speaker
So I think it was it was months, maybe even it was a while before you even led on to me that this was also a personal passion of yours. Yes, I did. And maybe that's because I'm not a self promoter or a talk like to talk about money too much, which is probably a flaw of mine, because I do have a lot of knowledge in my head of money and lessons that I've learned from my dad growing up.
00:03:26
Speaker
who's still alive and 81 and kicking and a very healthy and happy. So, um, you know, I'd love to, uh, follow the path of, uh, his, um, life choices and everything else and my mom also.
Overcoming Hesitance in Financial Discussions
00:03:38
Speaker
Um, but yeah, I think, uh, money a lot of times is one of those topics where people get nervous talking about because people can get offended quickly when you say, well, you shouldn't spend money on that. You should do this, not that people don't like being told what to do. They need to make their own choices.
00:03:56
Speaker
Um, so a lot of times I think getting into that money conversation, um, hesitant sometimes because of, uh, for those reasons, uh, people can get, uh, offended or whatnot. Yeah. And especially when we're talking about, you know, young people who's maybe they come from a family who don't openly discuss finances or whose parents
00:04:19
Speaker
maybe didn't have good financial habits and therefore didn't pass them along. And I would say that many people who joined the military are in that situation. I would say, you know, they say the military is a microcosm of the macro as far as
00:04:35
Speaker
Who joins? It's a representative of society as a whole. You can debate that. But what's not debatable is many people come into the military without that strong financial education background. And that's also the masses as well. But it is something in the military that we've seen as leaders.
00:04:54
Speaker
that we then have to go and develop some kind of understanding or at least attempt to from our from our leadership positions, whether it be through training, mandatory training, or just informal counseling on the deck plates. And I know it's hard to have a conversation about the future with somebody who's 18 to 25 years old, because they just
00:05:14
Speaker
worried about right now. They're worried about paying the bills right now. They're worried about what they can get right now, enjoying life, which is all understandable, but it's a little bit short-sighted when you think time flies. And before you know it, you're at retirement age like we are or older. And then you look back and say,
00:05:30
Speaker
you know, was all that spending worth it?
Understanding and Optimizing TSP Contributions
00:05:33
Speaker
So the point of this conversation, we're gonna get right into it, is I think the very first thing that military members can do to set themselves up for success is to contribute to their Thrift Savings Plan. What the Thrift Savings Plan is, it's very similar to the civilian 401K. So when a military member first joins, now they are automatically enrolled into making contributions to their Thrift Savings Plan.
00:05:58
Speaker
which is a great thing because before it wasn't that way. And then you had very few people actually contribute. So I do commend the military and making that a mandatory requirement, automatic requirement. And then you have to opt out. So just as we've seen on the civilian counterparts, fewer people opt out. And then therefore the result is you have more people actually investing in saving for long-term retirement. Now they're not, they don't automatically enroll you to max out your thrift savings plan.
00:06:28
Speaker
it's up to the individual to go in to the TSP.gov website or their MyPay and make sure that they are contributing what they believe they're contributing and what they want to contribute toward their Thrift Savings Plan.
00:06:40
Speaker
I completely agree with you and I'll even go back to some of the touch points of lack of knowledge of an 18-year-old when they leave high school in American society. A lot of states are actually creating requirements to take some personal finance classes in high school before you graduate. Ohio just passed a law, for example, on that.
00:07:06
Speaker
So I think those are great things. And then the Navy and the military in general also, yeah, you're taking on that person into our organization to transition them into that adulthood. And part of that adulthood does not, they did not necessarily get all of that, those financial conversations and whatnot at home necessarily a 401k they may have never even heard of.
00:07:33
Speaker
Or what the difference is in a tsp and 401k. But that important part of this new blended system I think is good. And the fact that if they look at their pay stubs and their pay statements, it actually is in there automatically. You know, the Navy and the DOD, whether you're Air Force or Army.
00:07:54
Speaker
is contributing to that already automatically. And it is your choice of whether to increase it or not. But yeah, you have to take steps to increase that and then what they only match to a certain amount. So everybody needs to make that personal decision as to what they want to add.
00:08:12
Speaker
into that account. A lot of times, 18, 19, 20-year-old kids in the military also, they are living paycheck to paycheck. The DOD does not necessarily pay them cash amounts that is enough to have some expendable money to put extra money into TSP.
00:08:34
Speaker
Maybe there's a roof over their head. Maybe they got three squares a day or whatnot, but they don't necessarily have that extra cashflow to put into the TSP. But it's definitely something they need to be aware about before they get to that point where they have that expendable money.
00:08:51
Speaker
When you invest in the TSP, it goes into one of a number of funds. And I believe the default is still the G fund. I don't know that it's changed, which means if you're contributing to your thrift savings plan and you have not gone in and actually reallocated where your contributions go and into what funds, it will be going into the G fund, which is the government securities fund, which is zero risk.
00:09:18
Speaker
But damn near zero return you're going to get right now it's high because interest rates are high. When I say high, I mean right at 4% I think is what you're getting right now in the G fund. But that is not where you want to be at 20 years old or even 30 or even 40 years old. You do not want to be in the G fund.
00:09:38
Speaker
at least with all of your money. So you want that to be a very intentional decision on how much or what percentage of your total net worth is in very conservative investments such as the G fund. So if you have not gone into the savings plan or tsp.gov and changed your allocation, you need to do that now. If you want growth that even keeps up with the market because your 4% will not keep up with the market. It's merely a hedge against inflation. No, you're absolutely right. Yeah.
00:10:08
Speaker
And if I hand the importance of going in and learning what those funds are to be able to realize what your money should be going into, because even though it's showing on your pay stuff, it doesn't necessarily tell you where that is being invested.
00:10:28
Speaker
And the TSP program has expanded into some incredible funds that were not available when you and I first joined the Navy. I remember, I will openly admit, I did not contribute to TSP because one, there was no matching back then in the 2000s. And then two, the funds that you could actually put your money into was very limited and I wanted to be into
00:10:53
Speaker
Riskier, equity, mutual fund style of investing in my 20s. But that is absolutely available to you in the TSP now. The other thing I'll say, there are resources available in every service. The Navy has Fleet and Family Support Center.
00:11:10
Speaker
And they have classes on these are usually 45 minutes to an hour and instructor comes in and tells you everything about tsp and all of those different funds and what they mean and recommendations on what you should be investing into.
00:11:27
Speaker
And I'm not sure if these types of funds existed even when I first came in, but I do know now that if you're just a fire and forget kind of person and I don't personally advocate this, but if you just don't like this stuff and you don't want to do the research, go in one time to your third savings plan and allocate towards whatever target date fund.
Investment Strategies and Myths in TSP
00:11:49
Speaker
is available for you for 30 years from now. So I think they're listed like 2040, 2050. That's the names of these funds. So you can go in and think, okay, when will I want to retire? Is that 30 years from now? Is that 20 years from now? Is that whatever you pick and what these funds do is they become more conservative over time. In my opinion, they're too conservative the entire time, but
00:12:14
Speaker
If you're the kind of person who just doesn't want to think about this stuff, go in one time, put in 100% of your contributions and 100% of your allocations to whatever target date fund you want. Please learn a little bit about why you're doing it before you do it so that you'll stick with it. But if you're a fire and forget kind of person,
00:12:31
Speaker
That's one way to go. Completely agree. And it's maybe not even just interest in the finance world or whatnot. A lot of people don't have time. Military, you're getting deployed and everything else. So you don't have time necessarily to do the research, especially at a young age. Your junior tours or whatnot are probably some of the most demanding for me.
00:12:53
Speaker
in my career. So yeah, if you don't have time, put that in that health fund. Those are very standard out into the civilian industry also with other investment firms you can sign up with. If you go outside of TSP to investing, all of them have some kind of retirement funds for a target year point. And then look at what that
00:13:21
Speaker
L fund looks like as a broken down if you really want to know what they're investing that into because you're just investing in the funds that TSP that exists in TSP. And the other thing I'll point out too, a lot of people when I was young, I wanted the quick money and the quick return on investment and everything else. It's difficult to look long-term and think long-term.
00:13:45
Speaker
But those funds do that. But it also exposes you to some of that quick money. A lot of people I talk to say, oh, well, TSP is not going to invest me into Tesla or some flashy stock or something like that.
00:14:02
Speaker
believe it or not, go look at what companies those funds actually own. And in the small cap fund, Tesla was on the list. I don't know if it is currently, but Tesla was owned by TSP funds. So you are actually exposed to those flashy stocks and stuff, even through these boring TSP government run investments.
00:14:28
Speaker
And one of the concerns that I heard from not only just your junior enlisted or even officers, but even your senior enlisted who should have known better when they were giving counsel to our young sailors is that it's run by the government.
00:14:46
Speaker
There's an independent Thrift Savings Board that runs these funds. So it's not like giving Uncle Sam your money. It's just like if you were giving it to Vanguard or Fidelity, it's an independent agency who runs these funds. Yeah. And that's the board running the decisions on it, but then it's still being run by just a
00:15:04
Speaker
you know, probably New York City funding company, I think BlackRock has been involved in it. So, you know, some of these large funding companies that you would be investing in anyway or be using to get your money into exposed to the stock market.
00:15:23
Speaker
I guess my advice to somebody who's young in the military hearing this is, yes, we look to our chiefs or our sergeants or anybody who's above us in rank and assume that they have this greater knowledge of money and wisdom and life. In many cases that is true. I don't want to say not to listen to them.
00:15:42
Speaker
But please do your own outside of the military work on your own education, particularly when it comes to money. And this is your money. So you need to be in charge of it. You need to understand what's going on. And the military is stressful enough. So your superiors, they're worried about their job primarily and making sure that you excel in your career.
00:16:05
Speaker
Don't let them see the same people who are giving you advice about your money unless you do your own work, own homework, and then you agree with them. Look for multiple sources of knowledge and for anything to do with your money. This is your livelihood.
00:16:22
Speaker
Mm-hmm. Absolutely.
Automating Savings and IRA Prioritization
00:16:24
Speaker
One practice that I would recommend to people who, because when you go to bootcamp, they automatically enroll you. And then you're busy. Like we've said before, you're busy getting your quals, stand out watch, fixing machinery, whatever it is you're doing, and you're going to be very, very busy. And we're speaking from Navy specifically. Maybe it's different in other branches. Here it is.
00:16:46
Speaker
But you're going to be busy. So you're going to need a reminder to go back into your Thrift Savings Plan once everything gets settled. So set a reminder, set a Google six months from the time that you enrolled to go in and prompt yourself to either learn more about Thrift Savings Plan, double check on what you're being invested in. Because in the past, I've heard people think they got invested in certain things because somebody told them,
00:17:08
Speaker
And it wasn't the case. Then three years went by and then they found out they're still in the G fund and made, didn't make the 20% per year that their peers did. And that's real money over time. So know what you're invested in. So prompt yourself, set yourself a Google calendar reminder and go back in, take 30 minutes, take an hour and just do a little bit of research. It's going to be the best return on investments you can do. And then automatically,
00:17:34
Speaker
like in your reminders, prompt yourself to say, and no matter what your income is, even if you're the lowest rank in your group or whatever it is, even if you're E1, E3, go in automatically up at 1%. Do that every six months, even if you feel like you're gonna feel a pinch, because realistically, you probably will not feel the pinch, not any more than you already are. And you're gonna be very, very thankful you did that a decade from now.
00:18:00
Speaker
I think that's true across the board for those, the budget concerns and your bank accounts and your credit cards and all of that stuff. It is time consuming, but I think it's a great thing to do. Mistake number two, not opening up a Roth IRA. So a Roth IRA is completely separate from your Thrift Savings Plan. It's completely independent. It's something you have to do to set up. You have to go to Vanguard. You have to go Fidelity. You have to go to Schwab. Not all three. I mean, you could, but you don't need to.
00:18:29
Speaker
Pick one of those. Spend 30 minutes online. They make it very, very easy to set up and start funding. There are annual contribution limits, just like there is in your Thrift Savings Plan, a 401k, but you don't have a 401k unless you're a civilian, and the Roth. So that changes every year, almost every year. So make sure you double check that. And if you're able, max out your Roth
00:18:52
Speaker
then go back and max out your TSP. So the order that you want to do this in is you're going to be automatically enrolled in your TSP. Make sure you're actually investing in what you want to be invested in. Then start a Roth, then go back. And once you've maxed out the Roth every year, or you set up your automatic contributions to reach that max Roth contribution that year, go back and then start increasing your contributions to your through savings plan.
00:19:22
Speaker
If I were to go into why that order, it would probably take a lot longer than this podcast, but do your own research to find out why that order of operations is the best way to go. And I'll tell you just briefly, it has to do with taxation, growth, and your tax deductions for that year.
00:19:40
Speaker
So, yes, I completely agree. And everybody's in a different situation, as you just said, you know, that's your recommendation and everything else. You know, Roth irons, there are traditional IRAs also, but when
00:19:58
Speaker
We're talking to young sailors here possibly that are 22 years old, maybe not making a lot of the income. Most of the times they're in a really, really low tax bracket anyway, or maybe not even paying taxes at all.
00:20:13
Speaker
sailors or young enlisted that are in the military need to be aware when they file their tax returns and they're getting refunds. If they look at their bottom line taxable amount and what they're paying in federal taxes, probably zero in a lot of cases.
00:20:32
Speaker
So, why take a tax in a traditional IRA? Why take a tax deduction or anything that doesn't help you at all, put it into a Roth IRA? But everybody's in a different situation there or whatnot. So, I recommend to people to look at all the differences in those. But also that Roth IRA,
00:20:54
Speaker
I look at it as if you want to act like a rich person and see what rich people like to do, they like to find tax shelters. And a Roth IRA is that. You will not be paying taxes on all of those investments that are in that Roth IRA. Why wouldn't you want to do it?
00:21:16
Speaker
So that's my incentive to most people is just saying, hey, you want to be like a rich person or act like a rich person. This is something that is a given that any person with wealth would want to do. Also with that TSP part, there is traditional and raw TSP decision that we didn't really touch on, but it's the same thing on the compared to the Roth or traditional.
00:21:44
Speaker
IRAs, they're just tax sheltered, tax incentivized, uh, investment opportunities. Yeah. So I, whenever I contributed the Roth, I don't believe started until like midway through my career, maybe even a little bit farther than halfway through my career. That's right. Yeah. So I ended up doing traditional TSP the entire time. And I'm trying to think like, if it was available to me, is that benefit the same as a regular Roth? And maybe early in my career when I'm not getting,
00:22:14
Speaker
a lot, if I'm able to contribute to the Roth in a greater percentage of my income, is that better to do that? And then like say, when you do, when your income does start crossing some of those taxable thresholds, then start maybe shift from a tradition or from a Roth back to a traditional or to a traditional. Is that what you've seen or have you given thought through them?
00:22:34
Speaker
Yes, I have. But I will tell you, talking to a lot of different people about it, everybody has their personal opinion of what the best way is for traditional. Because if you say you're in a higher tax bracket as an officer, 15 years in the military, you have pretty good income. And so why not take some tax credit there?
00:22:59
Speaker
This gets into a debate on what taxes are going to be in the future. Taxes are decided by politicians and whatnot. Are taxes going to increase or decrease in the future? And nobody can really say that, right? So that's why it gets into a debate there. But I also think if you are an investor and you are thinking long-term to your retirement,
00:23:24
Speaker
A lot of people are going to be in a better off situation and maybe a higher tax bracket than they think when they get to retirement. So when you're in that higher tax bracket, I want Roth IRA coming to me instead of traditional IRA because you're going to have to pay taxes on when you withdraw that traditional IRA.
00:23:46
Speaker
The details of that you could get, that could be a whole nother podcast, but that's the difference there too. What tax bracket do you think you're going to be in when you are 60 years old and you're in that retirement planning piece?
00:24:02
Speaker
I will say if somebody's listening to this and they want to do a 20, 30-year career in the military and retire with that pension, well, if you're retiring with a 30-year pension as a 06, for example, you're already going to be in a pretty higher tax bracket.
00:24:21
Speaker
Guess what? If you have a bunch of money in a traditional IRA, you're going to be paying higher taxes on that than you think. So the tax benefits earlier on when you were younger in your thirties or forties maybe wasn't as good of a benefit as you think.
00:24:38
Speaker
Yeah, so there are a lot of intricacies and nuances between why you would choose one over the other. But if I were to give blanket opinion is the younger you are, the more it makes sense to do the Roth options. I would agree. Yeah.
Spending Habits and Financial Planning
00:24:53
Speaker
And then again, go Google difference between Roth and traditional and pros and cons and all those things. If you really wanna know the difference there or you think that you might be on the cusp of one of these tax brackets that actually make a difference.
00:25:07
Speaker
Number three, excessive disposable income spending. For many, when you join the military, this is your very first time getting a paycheck twice a month, which means you now see money hitting a checking account very often, something, a feeling that you've never felt before. And it's, you walk up to that Navy Federal Credit Union, ATM, pull out a handful of cash, and then either you go downtown or you go out to eat,
00:25:34
Speaker
you go to the bowling alley and buy drinks for all your buddies whatever it is it's a good feeling but it comes at a cost so be aware of all those additional costs and what you're not saving for yourself when you do this and your future i'm not saying don't go have fun but be very very aware of the trade off.
00:25:55
Speaker
there. Yeah, I call these my marshmallow decisions and you can Google the marshmallow test out there. It's all over in the psychology world of the study of kids that were tempted with a marshmallow in front of them. An adult said that they could eat the marshmallow
00:26:16
Speaker
as they walk out the room. But if they came back and they didn't eat the marshmallow, they get an extra marshmallow. So it's that, can children hold off and be patient enough to get a second marshmallow? And so it's that psychological effect or whatnot. Everybody has it. You can get into psychology on another podcast, although I think psychology is a huge factor and part of financial decisions. And
00:26:46
Speaker
I think people need to realize that. It's not just a budget, one plus one is two and I have $2, I can spend $2. There's more of a psychological piece to it. And I've definitely learned that in the last.
00:27:01
Speaker
10 years as I've gotten older and whatnot. But yeah, if you can hold off on some of those expenses that really eat into your disposable income and get that savings account going.
00:27:19
Speaker
then you'll have that extra money to throw into a Roth IRA. You'll have that extra money to be matched into the TSP. And so it's all the same conversation there, I think, in my mind as to, do you want to spend the money or tuck it away over here for a rainy day?
00:27:38
Speaker
And a lot of times that gets, you know, just bland and boring conversations or whatnot, but it is kind of, it gets into that nitty gritty piece of decision making. I do advising to sailors that are in financial distress and everything. And some of the things that I see there is, you know, those credit cards are being used for those expenses also. And then you get into that credit card debt.
00:28:06
Speaker
and poor decision-making, then you start digging yourself a hole very quickly. When in reality, if you get to a point in your life where it's routine to not spend that disposable income and tuck it away somewhere else, then it gets to be a habit. And go ahead and enjoy and splurge when you can.
00:28:33
Speaker
have fun when you can with your money. It shouldn't all be bland and boring. But those are those hard choices that people make. And, you know, young people do have a tendency to be more impulsive and make those quick decisions of, oh, just put it on the credit card.
00:28:52
Speaker
So it comes down to prioritizing savings over non-essential spending. And one way you can do that is by automating. Automate your thrift savings plan contributions. Automate your Roth contributions. That way you're not thinking about it. It's just something that happens in the background.
00:29:07
Speaker
and you can be confident what you verify is actually happening the way you want it to happen you can feel confident that you're saving for your future and that you can then. If you want spend whatever is left over freely however you want to because you know you're taking care of your future and yourself and your sanity really because.
00:29:26
Speaker
Nobody wants the headache and the, just as you mentioned, the financial distress because it's not just financial distress. Financial distress turns into emotional distress, turns into poor focusing on your job because you're worried about paying the bills or having your car repossessed.
00:29:44
Speaker
Or if we can prevent some of this distress, we not only have healthier mindsets, better mental health, you've got sharper sailors on the deck plates and fewer, probably fewer injuries, fewer mistakes, probably better production. And I'm glad you brought up automation because guess what? The DOD actually creates a system for you to make an allotment to a savings account.
00:30:09
Speaker
And with all the automation and everything else, I highly recommend your emergency savings fund should be a completely separate savings account tucked away somewhere that maybe isn't even attached to a checking account.
00:30:28
Speaker
that you can easily switch over to checking and put on that debit card or pay off that credit card or whatever. So if you make that emergency savings fund something that's a little more difficult to get to, even though in an emergency, you think, oh, I need to get access to that very quickly. Most of the times, financial emergencies can take a day. It's not that big of a deal. So I would recommend having that allotment set up. And then that's kind of your own
00:30:57
Speaker
your own budget. If you have enough money left over at the end of the month, you know that you have that emergency savings fund funded to be able to use for whatever you need.
00:31:13
Speaker
So if you're young and you're out there having fun, you might be thinking YOLO, you only live once. I don't want to sacrifice, that's too much sacrifice for my future. I want to encourage you to think about it a different way. When you automate your savings, when you contribute to your third savings plan or 401k, when you contribute to a Roth,
00:31:31
Speaker
you are acting in service of your future self. And I was very, very challenging to think ahead 20 years. But imagine 20 years from now, you look back, which person are you going to be more thankful for the person who went and spent every time they had and then some, or the person who practiced a little bit of
00:31:49
Speaker
responsibility with their finances and think about the quality of life that you're going to have in 20 years, one versus the other. And that's what's really, really challenging to try to convey to young people. But I can tell you, just like you looking at my face on this, on this video screen right now, time doesn't slow down. You end up aging.
00:32:08
Speaker
Your military career comes to an end. Life goes on though. You can either do it with money or without. And I could tell you it's much better to have the money than not have it. Nobody can fight time. Yeah, nobody can fight time.
Pitfalls of Car Ownership and Loans
00:32:23
Speaker
Number four, buying an expensive car. This is so huge. This is the, I don't know if this might be, it's probably the most frustrating thing to see.
00:32:34
Speaker
at on the deck plates, you go on a deployment seven months, you're gone, you're getting that tax free money, at least for a handful of months out of that. You come back, you've got thousands and thousands and thousands of dollars saved up, probably no increase in the savings plan. It's just sitting in a checking account. And then the very next thing you start to notice.
00:32:52
Speaker
brand new cars in the parking lot, brand new cars. These are people who have no business. They can't pay, they probably can't even make the payments legitimately, but because there are so many dealerships in the vicinity of fleet concentration areas taking advantage and, and why not? I mean, you have sailors out here doing it. So that's a business, extremely high interest rates on these new cars, extremely high, embarrassingly high.
00:33:17
Speaker
Yep. And it's across the board. It doesn't matter listed ranks, officer ranks, it's across the board. You know, people going into that choice and that decision there. Yeah. So I, I lived in an apartment a couple of years ago and one of the neighbors was a young couple. I noticed he was not there. You just, I see him coming in and out in their uniform and I haven't seen him. I was like, Hey, is it on deployment? Yeah, they're on deployment. I see him come back.
00:33:43
Speaker
And I made a mental note. I'm like, I give it three days, three days. Like it might've been four days and then boom, brand new car in their parking spot. I'm like, Oh, I just, if you could just walk up to people and shake them and you can't, I think that's illegal. I don't know. I'm sure that's, I don't think you can really.
00:34:00
Speaker
I think that's called salt. But yeah, it's not just the amount of money that you're spending on that car too. It is the interest rates and the loans, which I think we're getting into later. But yeah, it's a combination of all of that too. You're not just paying for the car itself. You're paying for all of the financing of it too.
00:34:28
Speaker
Yeah, it's no secret that depreciation occurs immediately. And not to mention, every since what, COVID, the price of new cars have skyrocketed like 30 plus percent. Yeah. Just for your average price. Like I almost get, it's almost like walking through a grocery store now, you kind of get sick to your stomach when you see like a can of ravioli costing $4. I hope I'm exaggerating, but I may not be. Like it's ridiculous now how much things cost.
00:34:52
Speaker
Cars are no different. They've gone up, I think the actual number is like 30 plus percent in just like three years, the cost of a new car. It's just outrageous. I mean, the amount of technology that's going into these cars too is crazy. I'll also add on the, if you're the type of person that wants to buy a new car every three years,
00:35:13
Speaker
the upgrading to the new car or whatnot, just the transfer costs from selling your old car or giving it to the dealer to trade in and then you're paying your new registration fees and sales tax.
00:35:31
Speaker
It's amazing how much that can add into your factor of how much you're spending on things. So nothing wrong with buying a new car every three years if you want to live that lifestyle and everything else. But I try and tell young enlisted and officers that you got to look at that transfer expense also.
00:35:56
Speaker
It's not just the interest rate. It's not just the total cost, but when you're paying taxes on top of that, it could be a hefty expense. Taxes. And of course, there's more taxes with the more expensive cars. Gap insurance, which is another thing that if you buy a brand new car and you don't put down more than 20%, you have to pay gap insurance. So that's in addition to your regular insurance, which is already going to be high because you're going to have to have total coverage.
00:36:23
Speaker
And so you got taxes, you got insurance, you got gap insurance in most cases and the cost of registration. And recently I went and reregistered my 2016 Avalon in the state of California because I had just moved and I was due. And I don't know, out of nowhere, the person that I was talking to about this, the person at the kiosk where I was doing my registration, they said, do you have a Tesla? I said, no. They said, good, because if you did, it would cost you a thousand dollars a year.
00:36:53
Speaker
to register it. So make sure you actually do the homework on whatever car you're thinking about buying and really understanding all the costs. And that's just the cost and then the interest. And what I want you to understand is for every dollar that's going into somebody else's pocket, that's a dollar that's not staying in your pocket and it's not growing for you. So you can either pay that interest and those expenses to someone else or to somebody else or some other entity, a car dealership,
00:37:21
Speaker
Or you can build your own business of yourself, contribute to your accounts. And that way over time, you have interest growing on your side of the equation, not taking it away. It can be a drain and it's way more than you think because most young people just don't get the numbers or they don't want to do the work. They just get excited that they're going to get a new car. And that can be exciting. It is. Yeah.
00:37:44
Speaker
As with most things though, as with most purchases though, it's hedonic adaptation. You're going to become less joyful of that purchase very soon after you were probably within months after buying this vehicle, that joy that you felt purchasing that car is going to go away. And then you're going to see it for what it is, which is a financial burden and a weight, maybe even a regret. So my recommendation
00:38:07
Speaker
would be cars these days, even used cars. They're so much more reliable now than they were when you and I were 25, the 10 year old cars from that decade. I don't know. We're probably kind of like early nineties. I don't know, but there's so much more reliable. Who cares what your car looks like? Who cares? Does it run? Does it get you from point A to point B? Is it safe enough? I guess safety matters to some people, you know, wear a helmet. I'm just kidding. No, but where your safe belt, you're fine. Yeah.
00:38:34
Speaker
all these new features of like safety, safety, safety. My opinion is they do that to make you fear not having those safety options. I think that cars are probably no more safe, no less safe than the new ones.
00:38:46
Speaker
Yeah, I think that does segue right into your item number five. Buying expensive recreational toys. This is, I've actually seen this with not just junior sailors, but your warrant officers, your people who have sought you, who've been, who like go out to the desert, get their RVs.
00:39:07
Speaker
and RVs, ATVs, motorcycles, and we could talk about just the risk reward. Oh yeah. Nonsense of motorcycles. I don't know, I'm gonna piss a lot of people off when I say that in the military. It's like some kind of badge of honor to have a motorcycle. But when you drive down 94 or five almost every morning and see a motorcycle accident, it just, it doesn't add up. So if I, here's my soapbox about motorcycles.
00:39:35
Speaker
If I could sign something, if I was president of United States for a day, all street motorcycles banned. The risk reward is just not there. And you can say, oh, but it's just not, you cannot convince me otherwise. Show me any data that says,
00:39:50
Speaker
Show me any data that makes sense. You're taking a freedom away there, Mr. President. Oh, I know, I know, I know. Well, I've seen too many people die, and that's why. I was a division officer on board the Tarawa, and LHA-1, which is now decommissioned, and one morning, somebody didn't show up.
00:40:10
Speaker
And it's because they went, got on their motorcycle at two o'clock in the morning to go to some kind of all night pharmacy to get some medicine for their girlfriend's child. And an 18 wheeler pulled out and he ran right into it. So, so down one sailor. And I would like to say that this story is unique, but it is absolutely not. It happens all the time.
00:40:35
Speaker
Pretty common. So much so that they actually require motorcycle safety courses to even ride a motorcycle if you're in the military. Yeah, I think it's even the reservists also that get frustrated with that because they aren't even necessarily on orders and they have to abide by it also. But I think it is that part where the military is trying to prevent some of that, making it difficult to do that.
00:41:01
Speaker
But then also on these recreation vehicles and everything else, people take loans on these and they're not your standard loans that are lower interest rate for a typical automobile that is your everyday car. You're usually going to pay a higher interest rate on it because it's a fun, expendable item.
00:41:22
Speaker
Yeah, so imagine already taking a car loan, whatever loans you have at this point, maybe you even took a consumer loan at this point because of hardship because of your financial habits. On top of that, you see your buddies going out to the desert or getting a new motorcycle or whatever it is, and you want in on the action.
00:41:41
Speaker
All these things just constantly drain. Drain your money-making machine that you could be building for yourself. Yes, absolutely. So my recommendation in this situation would be rent. If you love that lifestyle, just go rent for a weekend. Rent an ATV. That's going to be far less expensive and something happens to it. You don't have to fix it. Yeah. Well, maybe do that. I'm not sure how that works between you and whoever you rented it from.
00:42:06
Speaker
Yeah. But there's other ways to get that same value. You don't have to store it then, you don't have to pay insurance on it. And you still get that same value, which is what do you get for your money? What feeling are you looking for? What are you desiring? You can still get that feeling for far less money and far less mental burden and financial burden.
00:42:25
Speaker
No, I would agree. I would agree. Our sixth military money mistake is co-signing loans and leases. I can't tell you how many times I've seen this. Maybe the rules have changed, but I know that junior enlisted, again, don't necessarily make a ton of money. So once you hit E4, again, maybe the rules have changed. Once you hit E4, you can then try to get BAH, which is Basic Allowance for Housing.
00:42:52
Speaker
And so then you'll get people who want to live together, like multiple sailors will rent this house and split the rent. And maybe they can save a little bit of a difference between their BAH and what they're actually paying, which is great, except for now everybody's liable. And then what if one person stops paying the rent and now you're liable for someone else?
00:43:12
Speaker
or someone leaves on orders to go somewhere else and then they stop paying or, or, or there's so many downsides to this. Have you seen some things like this, Rick? Absolutely. And more than I really expected, but yes, you're putting a lot of trust in somebody there. And we didn't, we're not really into credit scores or anything like that too. But this is one of those things that can greatly affect
00:43:40
Speaker
where you can get loans and everything else from if your credit score is hit due to not paying rent or a roommate that is delinquent on that rent. You're on the lease too. It doesn't matter legally. And you're on the hook for that money just as much as the roommate that is not paying the rent. So the other one is
00:44:08
Speaker
those roommates that come in and they're not on the lease, they can come and go as they please. And I've seen that situation too. And then you mentioned the hedonic treadmill and the fact that you are used to having this roommate and that you're used to having that excess money every month. And then they just up and leave one month and you have no recourse to them, but your lifestyle is going to have to change and your lifestyle is going to be affected.
00:44:36
Speaker
Those are just risks that I think people do take. But the biggest one being, yeah, when it can affect your credit score and affect your financial situation there. So when, I know in the Navy, I don't know about other branches. I know in the Navy, if you're assigned to a ship, you can live on the ship. Yes. You have, you have a room. Well,
00:44:58
Speaker
You don't really have a room. You've got, okay. So you got a rack. So imagine this much space divided into three, maybe four. Nowadays, I'm not sure how efficient they are these days, but bed, bed, bed, and like in a big old room, a lot of other beds and a lot of, a lot of other people. So when you're underway, this is where everybody sleeps.
00:45:20
Speaker
And then, but when you're in port, you can also choose to just live on the ship. And I think it's a requirement unless you have a special circumstance up until you're like an E4. Again, the policy might've changed, but that's what it was when I was in. And so I understand that when you're in your early twenties, you want to like live, you want to live an adult lifestyle, like grown up.
00:45:45
Speaker
And part of that is getting your own place and desiring that, getting your own space. If you are meeting all of your financial obligations and if you're already maxing out your Roth and your Thrift Savings Plan, this will be my advice. Then if you're doing all those things and you still have the money to go out and live that, do it. But if not, tough it out on the ship or the barracks if you're on base or shore duty or if you're in a different branch. I'm assuming that they have barracks that are either
00:46:12
Speaker
free or very, very low cost when compared to renting out in town. Just do it. Just do it. Save the money. Your lifestyle is actually the pros and cons of that versus living out in town. You don't have to furnish a place usually. The galley is nearby, which is also inexpensive food.
00:46:30
Speaker
You've got a gym, not free. Yeah. Yeah. So free meals on the ship, you know, get, take advantage of those free meals. Food is getting more and more expensive out there in the grocery stores. And once again, that the lifestyle choice of you want to be free. You want to be an adult and go make your own meals or something, but you can save a lot of money, even the Navy's eating the Navy's food and whatnot.
00:46:54
Speaker
Yeah. And actually I think reverse, like I think stereotypically we think if we're on the ship or not, we have less freedom. I think of it the other way around. Like if your expenses are really low and if you have very little to maintain, which is just your rack and cleanliness of the space that you're in, you don't have to maintain a household. You don't have a bunch of dishes you have to do every night. You don't have to vacuum. You might have to clean, but
00:47:19
Speaker
You don't have to worry about keeping up with bills. Utility bills are just annoying if you don't have them on autopay, which a lot of young people do not, and then they get backlogged on those, and then all of a sudden they have a big bill due, and that can be painful. But it does come back to that.
00:47:40
Speaker
disposable income that you have left over available. If you have that and you want to go live that lifestyle, then that's great. But realizing how much disposable income you have, I think in a younger age, really comes down to that budget piece, really looking at the bottom line every month of what you have and what you don't.
00:48:01
Speaker
Number seven, loaning money to friends and family. Yes, I'll bluntly just say don't do it, period. That's a hard lesson learned from myself. I've loaned thousands of dollars out to friends and family, saw very little in return. If you've got it, when I say if you've got it, I mean, if your net worth has reached $100,000 or more, then and only then have you earned the right to actually give money or gift money to other people.
00:48:27
Speaker
I'm not talking about people who are in extremis. If people are starving in your family, okay, I understand you can help out. However, many times it's our friends and family who don't have responsible financial habits and they got themselves in that situation. And you giving them that extra thousand dollars or that $200 or whatever it is, is not going to change their habit. And then you are very likely just going to be out of the money.
00:48:53
Speaker
No matter what they say they're going to do, I'll pay you back with interest. I completely agree. And I think if you do make that decision, which I have also, I've done the same thing. So I'm right there with you. But if you do it, I'm not expecting that money to really come back, even if they say they're going to be paying me back.
00:49:13
Speaker
Because one thing, this is a personal life decision. I'm not going to let money get in the way of a relationship with my family. But family is very important to me. So that's just my personal choice. Every family is different and maybe some people can just walk away from family and have that affect their relationships and everything else. And that's totally fine too.
00:49:37
Speaker
One thing I do when I advise junior sailors and everything else, I am surprised how many of them are giving money to family. And it's not just a sibling. I've seen people giving money to grandparents that haven't necessarily
00:49:54
Speaker
planned out their own retirement, or I've seen medical conditions and medical situations where those grandparents need some money to take care of a medical situation. And I mean, that's really tough on somebody to be in that position and whatnot.
00:50:15
Speaker
especially when a grandparent's ill. But yeah, I still give the same recommendation of, yeah, don't do it. There's got to be some other way to be able to do it. The other thing I'll point out in that what I've seen with young enlisted that come in at 18,
00:50:35
Speaker
As you already said, it's two paychecks a month and it's just steady. You're going to get it, whether you have a broken leg, whether you're in the hospital, whether you're sick or not, whether you actually do the work or not, you're going to get that pay. And that's a really comfortable place to be in life.
00:50:52
Speaker
Most people worry about breaking a leg and then, oh, I'm not going to be able to go do my manual labor job. And therefore, I might not even be able to work my hourly wage job. I might get fired. Those are things that weigh on people out in the civilian world. But family tends to prey on some
00:51:13
Speaker
um, military members for that reason. And the fact that, Hey, what are you worried about? You're going to get your paycheck, you know, every two weeks, like, just give me this $500 you can, you're going to get more of it. Don't worry about it. And it's sad to hear those stories where, um, and I do say they prey on them a little bit because maybe they're not used to having that steady paycheck in their family and they come from that type of family or whatnot. And it's, it's a tough decision for those people to make, but, um,
00:51:43
Speaker
But yeah, I recommend people to avoid it as much as possible. That's a tough one. That's a tough one. And I know people are listening to this thinking like, why are you going to be such a cold person and not help somebody else who needs it?
00:51:57
Speaker
I know it sounds crazy, but you're probably helping them out more by not giving them the money in most cases. A lot of times they are because I'll tell you what, with a lot of federal programs and everything else, state programs, I just mentioned the healthcare situation. A lot of times maybe they haven't gone down all the avenues that they can to get benefits and get assistance in other ways. It's the easy fix to go to the military member that has a paycheck coming in.
00:52:25
Speaker
So when they have to put a little work into a bureaucracy of trying to get some kind of assistance in other ways. So in a way, if you don't give them that money, then maybe they do go down that path and they get that assistance where it's needed. They just have to put a little effort into it. And maybe you can even help them in that process instead of giving them money. Yeah.
Insurance and Credit Management
00:52:50
Speaker
I actually had a podcast on this topic. So if you're listening to this and you want to like to hear more about that in depth, go check out the YouTube channel. Me and a few other people, we talk about that. We talk about our own experiences and what we would do in hindsight. And I think you can find that very valuable. It's a really tough spot to be in. And I don't want you to think because you say no to your family member or a friend or somebody who expresses that they're really in need. And I will say this, nobody knows you better than your family members and close friends.
00:53:19
Speaker
They know how to work you. Don't be taken advantage of. It's okay just to say no. And then they just stop asking and life will go on. And then you don't have that layer of discomfort or angst or regret or tension going forward with that person because I can guarantee you all of those things will happen if you get in the habit of lending money.
00:53:41
Speaker
Let's talk about insurance, neglecting adequate insurance. I think this is a huge one because we talked about those, the auto, the expensive cars, the toys, all these things that people go and buy, and then they added on costs of all of those.
00:54:01
Speaker
to include insurance. Insurance is a very complicated thing. These insurance companies spend tons of money in research and data to figure out what price they should be charging people because what is the risk?
00:54:17
Speaker
Um, but, uh, and so with that complexity, when you're 18, 20, 22 years old, um, I don't care. I just want to make sure that I'm abiding by the law. I don't get arrested or get a ticket or something, which that's where most people think, Oh, I just need to get insurance so that I don't get a ticket. If I get pulled over.
00:54:36
Speaker
That's one thing, but it's a lot deeper than that. And the biggest thing that I see is they have the expensive car and they don't have the right insurance for that car. And that's the collision and liability and the difference in those two.
00:54:54
Speaker
I have seen a lot of Navy sailors that get into an accident and they don't have that collision to pay for the repairs in their own car. All they have is liability because that's what the state law requires. And then they have a loan for that car.
00:55:11
Speaker
And then they're on the hook for the loan because the law protects the lender, not the sailor. And therefore they've got a totaled out car and then they're paying a loan still for nothing. I see that more often than
00:55:29
Speaker
then i should it is surprised me a lot but people are in that situation and i don't think it's a i'm trying these people are trying to game the system even i don't know if they know the system and the fact that i didn't even know i needed to have that coverage.
00:55:47
Speaker
Because when you call these insurance companies up, I think USA is very reputable and everything else. I don't think USA would do this, but most of those insurance companies want to just give you the bare minimum what the law requires and also the cheapest rate so that you sign up for the cheapest rate. I think of three things when I think of insurance, life insurance, auto insurance, and homeowners or renters insurance.
00:56:13
Speaker
But because we're speaking to a military audience right now, we're not talking about health insurance. If this was to a civilian, we would be talking about health insurance as well. So in the military, your health is covered, or your health insurance is covered, your medical is covered. So that's why we won't talk about that. Homeowners insurance, if you happen to own a house,
00:56:34
Speaker
if you're tracking insurance over the last few years, it's also skyrocketing. So much so that the insurance companies are actually just refusing the right to actually insure properties. Florida, California, whether you're in a fire prone area or flooding prone area, they're just choosing not to offer the insurance. So think about your housing options too.
00:57:01
Speaker
Think about where you're going to buy. It's sort of like when we're talking about the car, there's a lot of hidden costs. Homeownership is the same way. Insurance is a big piece of that. And depending on where you decide to live or where you decide to purchase. And this is with rental homes. If you're an entrepreneur or you try to purchase rental properties, these are all things that you need to be aware of. Homeowners insurance is a big one. Two, renters insurance. Like we were talking before, if you decide to move off ship or off base and to an apartment or a house,
00:57:30
Speaker
they'll require, in most cases, they'll require renter's insurance. And usually, thankfully, this insurance is actually pretty cheap. It's only, I think, maybe between $7 and $14 a month. It's very, very low. So make sure you have that because you just never know. And it covers a lot. And make sure you understand what it covers.
00:57:50
Speaker
Yeah, the renters insurance is a big one because I think a lot of people, especially in base housing, think that they maybe are covered by the military or something. But if the house burns down in base housing, your personal items aren't covered. The military is not going to pay you back for whatever you have in that house.
00:58:12
Speaker
In fact, the military may even self-insure what we call self-insuring for that housing. They may just pay to rebuild the thing, but they're not going to pay the military member back for things that they've lost necessarily. The renter's insurance, I think, is huge in that factor of a lot of people think, oh, I just live on base, I'm good to go, but they're not.
00:58:39
Speaker
And talking about auto insurance again, we talked about autos earlier. Here's a hack, do not buy a new car, buy a car that's five, 10 years old or older. The value of that car, one, you're gonna be paying less for it. And you might even be able to pay cash for it, which I highly recommend. And if you automate things earlier, if you decide you're 20 that you want a car and you're gonna save up for it, you just automate to a different account, like a car account, just like you would have saved an emergency savings account. And when that reaches an amount that you can purchase a car,
00:59:09
Speaker
that's dependable for you, then you use that money to do it. Now you own a car outright, it doesn't depreciate nearly as great as a brand new car or in those significant amounts that one does. And you may only need liability insurance because if you've actually got the financial habits down, you probably have developed built a net worth enough to cover replacing that on your own. So then you can actually reduce your insurance costs
00:59:37
Speaker
Right now, my truck, and I've got money, but I have a 2005, I have a 2005 Mercury Mountaineer, because I like to go to the beach and just throw stuff in. I don't have to worry about dings or anything like that. But I can just insure with just liability, because I can cover the cost of replacing it, no problem. Now, that's a personal choice too, but realistically, the insurance company is probably not gonna give you what you want for your car, no matter what. And then you're gonna be frustrated twice, one that you paid for collision,
01:00:05
Speaker
on this kind of vehicle and second that they're not going to give you what you want for it or what you think your car was worth to replace. So you're absolutely that's a great a lot of people don't realize that you have to negotiate with the insurance company as to what the value of that car is and I just had a friend that went through it and they had to
01:00:23
Speaker
argue with them to get a little more money out of it. So Kelly Blue Book and Edmunds and everything else that you see online, that's not necessarily what the insurance is gonna say that that car has worked, so. Absolutely not, no. Because don't forget insurance companies are out there to make money off of us. And insurance serves a purpose, but we've gotta be smart in how we handle it. So use car, liability only. If you can comfortably cover the expense if you were to total your car,
01:00:52
Speaker
And then you can even bolster up some of your other insurance if you want. So that gives you some space financially to do that with. Not to mention all the taxes you would save because you're just buying a used car. You will pay taxes on it and registration, but all that stuff is cheaper on a used less expensive car.
01:01:07
Speaker
More money to save and to add to your money-making machine. Another type of insurance that we want to cover is life insurance. For the demographic that we're talking about right now, young professionals, if you are in a civilian world, you probably want some kind of life insurance. You don't need a lot. In the military, you have SGLI automatically.
01:01:31
Speaker
And I believe right now it's 400 to 450,000. I don't know exactly, but it's automatic. It comes out of your paycheck. It's, I don't know exactly what it is. 25, 29, $30 a month. I think it's bumped up to like 31 now, but yeah, I think they bumped up the amount of 450, 500, something like that.
01:01:50
Speaker
Yep. So if you look at your pay stub and you see that SGLI, don't opt out, keep it, keep it for as long as you're in. And then whether you get out after your first tour, second tour, whatever it is, you'll have other options. And that's a different conversation. But at this stage in your life, in your twenties, you probably don't have a huge net worth. You're probably in the accumulation phase, unless you got really lucky with some things.
01:02:16
Speaker
or you got an inheritance, you will have other insurance needs later. But I want to say this as a blanket statement too, insurance is not investing. Insurance is not investing. You will have people because, just like we said, friends and family will prey on you. You will have professional money managers, experts that will prey on you as well. And they will try to sell you insurance products
01:02:40
Speaker
very expensive insurance products and try to sell it to you as an investment. In my opinion, it's best to keep two separate mentally and functionally in your portfolio. Insurance is for protection against downside. Investment is for growth. You will be confronted with people trying to sell you things that say insurance is an investment. I caution you to accept that insurance is an investment. Insurance is insurance. Investing is investing.
01:03:06
Speaker
I completely agree with you. Investing, you're trying to grow networks and save for retirement or one function for the future or whatnot. Insurance is trying to offset risk.
01:03:22
Speaker
in your day-to-day life. You walk out the front door, there's risk associated to life. So I look at insurance as a risk. They're taking risk off of my table and off of my plate and paying a company to take that risk on to them.
01:03:42
Speaker
And that's why I've paid car insurance premiums, but I've never been at fault in a car accident. So you could look at that as money down the drain, wasted money. But no, it's not because I didn't have as much risk going through all those years without having that car insurance. So I look at them in those two different categories.
01:04:08
Speaker
In the life insurance part, I think the life insurance is very important. I have SGLI now, but that's also because I'm married and I have kids. When I was younger, I did not have SGLI. So I'm in a little different opinion than you, David, on that in the fact that I looked at it as, hey, that's 30 bucks a month that I can be put into my savings account. Or that's 30 bucks a month I can be putting into my investments.
01:04:38
Speaker
And one reason i came to that determination i talked about it with my dad i was like dad but no if i'm twenty five i'm not married i don't have any kids like where's money gonna go to like you and mom that's who was listed on my who would be listed on my policy if i had one back then.
01:04:57
Speaker
but for SGI. And they were like, well, yeah, we don't need it. We've saved for retirement or fine. Like really, if you died that we'd be more heartbroken and everything else, we wouldn't need money to take care of whatever you needed to take care of. I didn't have a lot of assets. I didn't have a mortgage to cover or anything like that. My car was paid off.
01:05:27
Speaker
I really didn't have a lot of ties. So if I died, somebody would have to pay or take care of those. So yeah, I didn't pay the $30 a month, but call me cheap on that. But the risk there to me was if I died, then I'd
01:05:48
Speaker
my family, you know, mourns and moves on. But there isn't a need for the money part. It's when you're married, it's when you have kids, your spouse, whether they work or not, and then they have to deal with your no income.
01:06:03
Speaker
when you are gone. So that's the way I look at the life insurance piece of that. But I completely agree, it is not an investment at all. What I like about what you said, Rick, is you just went through all of your intentional decisions and justifications for why you did what you did. Unfortunately, most people won't do that.
01:06:25
Speaker
True. Yeah. For most people, my advice would be just have the SGLI because you have that one. If you don't think about this money stuff very much, you're not going into checking that you are contributing to SGLI or buying SGLI. So when you get the first opportunity to do it, just do it.
01:06:41
Speaker
And then for most people, unless you've gone through exactly what you've gone through, you've had the framework, the structure, the mentorship of your parents, that conversation, that holistic conversation. Most people don't do that. So for the masses- Completely agree. If it asks me for advice of whether they should sign up for SGLI or not, yeah, go ahead, sign up. It's cheap insurance. Yeah, because let's say, for example, you're 18, you join, you don't get SGLI.
01:07:10
Speaker
You're pregnant at 19. You got a three year old by 21 or 22. You never went back to get SGLI. Now you're in a motorcycle accident and you die. Yes. And another one of those is a future divorces and whatnot.
01:07:26
Speaker
people are signed up on SGLI, but they have the wrong spouse that is on the SGLI. So, you know, there's a lot of life-changing situations that people do not think about that SGLI and changes there. I think that's an annual discussion people need to have with themselves as to, okay, what's changed in my life for this year? Well, what do I need to go off and change in my accounts and my
01:07:56
Speaker
insurance or whatever else to kind of get my life in order. I think that's an annual check every year. Number nine, lack of knowledge about credit scores. Much of what we've talked about already will impact your credit score either in a good way or a negative way. What do you see in your counseling as far as the level of knowledge young sailors have regarding credit?
01:08:21
Speaker
Very little. And in fact, this is probably the driest topic for today. And when a lot of people don't like to talk about finances, they don't want to talk about what that score even means or what that number is or how it's even calculated. There's a bunch of rules to it as to how it's even calculated. If you want to dive into it, those websites are out there. Experian and TransUnion will tell you exactly how it's calculated. So you can dive into that.
01:08:50
Speaker
But I don't think people realize, you know, when you go into a different range of a credit score, how drastically that's going to change your interest rates available to you when you get a car loan, you know, going by your toys and a home loan, which I mean, you want to talk about a huge investment there and you can get a lower, a little lower interest rate, you know, over 30 years of paying off a mortgage. That's huge.
01:09:19
Speaker
But once again, most people do not look at as to how much interest they pay over 30 years on a mortgage. But that credit score is a huge factor in what you're going to be paying on that interest. And if you want to look at it in an investment style, if you're paying more money to the bank at an interest rate, that's less money that your investments can make on interest back to you.
01:09:48
Speaker
So it's a huge factor and most people do not know much about it, especially there's a lot of tools out there today. Credit Karma and a bunch of other companies, which I have no association with at all. But if you, you know, that, that make it a lot easier to keep track of your score. And then also what do you need to do to change your score? And most of the times that the credit card debt that hurts people the most.
01:10:18
Speaker
Yeah, from what I understand, the single thing you can do to help your credit score is simply pay on time. Pay what's owed and pay on time and don't max out your credit cards. Pay them off every month if you can. That's just generally good advice too because if
01:10:36
Speaker
When they pull your credit, they're going to look at your debt to credit line ratio, basically. So if you've got a $50,000 credit line on your Navy fed credit card, and you've got a balance of like $40,000, well, the next person you try to get credit from is going to say,
01:10:54
Speaker
That's kind of rough. I don't think that's worth that risk. I'm not going to give you that line of credit for whatever. Or if I do, I'm going to, I'm going to jack up the interest rate to make it worth my risk to take you on. Yeah. I think another piece that people need to realize is you need to have a credit card in order to get credit that you need to show that you can hold the credit card
01:11:17
Speaker
in order to get a higher credit score. So yes, paying on time. I know the time of how long you've held a credit card is a factor. So I've held my, I got a credit card when I came out of high school and I've held that same credit card for that length of time. And that helps my credit score. There's a ton of factors or whatnot that you can, that you can do, but paying, paying on time and, and having that credit available to you are two of the biggest factors.
01:11:47
Speaker
One way you can make sure that you pay on time as to when you, when you go to your online bank account, go to your credit card management or whatever that dropdown menu is and set up automatic payments for the entire amount every month. What you're likely going to find out is that you spend way more on your credit card than you think. Yeah. Cause you're going to look at that checking account and they're like, Oh, where did all that money go? Well, I went to pay you on a credit card.
01:12:11
Speaker
Then you just realize that you're actually swiping that card a little more than you realize. And then that will prompt change. And then that actually changes your habit of spending on your credit card, which is very easy to do because the psychology of spending cash versus a credit card is very different. So I'm not advocating necessarily to spend cash, but I'm just saying recognize that it's different. It's easier to spend more money on a credit card than it is when you're handing somebody cash across the counter. So one thing you can do is set up automatic pay total amount every month.
01:12:41
Speaker
Two benefits of that. One, you won't be late on payments unless you don't have money in your checking account, which is another issue that you need to work on. The second is you get automatic feedback on your spending habits and it will prompt you to take a look at that credit card profile and say, okay, Hulu, Netflix. Yeah. What's that? A restaurant, $120 at a restaurant. Yeah. Then you realize like how much stuff really costs in the world and like,
01:13:06
Speaker
what you're willing to and not willing to pay for in the future or next time. And that helps shape your habits in a fun, in a, in a, in a very specific way versus just not having your auto pay set up and then just seeing a balance accumulate. And now you're into past due amounts.
01:13:24
Speaker
high interest rate payments and the cycle continues. And you can see how that just, just a burden on, on your long-term wealth accumulation and your, and your counseling for credit counseling. Do you advocate consolidation loans?
01:13:39
Speaker
No, but it also depends on the situation with the person. So I think the consolidation loan idea is when people are getting into that bankruptcy realm of they're legally in a situation where they're going to have to declare bankruptcy.
01:14:00
Speaker
And the sad thing is most of the times that isn't going to happen until they're in a situation where there's no other choice. But that for that debt consolidation can happen. There's a lot of companies out there that will do debt consolidation that are going to make money on you.
01:14:23
Speaker
There are a lot of nonprofits that are out there that aren't going to make as much money on you so i would recommend to people to do their research and homework on if they are considering that consolidation to pay off credit cards.
01:14:40
Speaker
But the biggest thing that I see is people that have a high interest credit card and then another low interest credit card, because maybe they got the high interest credit card later when their credit wasn't so good and they're paying off the low interest credit card first over the high interest credit card.
01:15:00
Speaker
I just bring that up and people need to know what their interest rate is. And most of these companies by law, if you look at their statement, have to tell you exactly how much interest you paid. So if you look at that dollar amount, it might be a little shocking to people when they do see the dollar amount of what they're paying in interest and what they're paying in principle.
01:15:24
Speaker
while paying off these credit cards. So pay off that high interest credit card first, and then maybe you don't have to go into a debt consolidation piece. I know people shop around for credit cards too, and they do the balance transfers for these 0% APR things and whatnot.
01:15:42
Speaker
those are great opportunities to transfer that, but then it's probably going to be a high interest rate again, if you don't get it paid off in that period of time that they're only giving you a 0% interest. So you got to be very, if you're going to do that, you got to be very focused into paying that off very quickly. That also affects your credit score in opening and closing all these credit cards. If somebody's doing that.
01:16:08
Speaker
Um, how much it does, uh, I can't really speak to in the details of it, but, um, but I know definitely the factor. And so opening and closing a bunch of credit cards doesn't necessarily look good. Yeah. So I have rental properties and before I accept someone as a tenant,
01:16:26
Speaker
I do a credit check as most reputable rental companies or landlords would do. And I tell you, if I see a car loan or a credit card with late payments or a lot of debt, I just don't accept that tenant. So that's a real life way that it can alter your plans if you don't have good credit. Because there's people out there that will look at that and say, it's not worth
01:16:51
Speaker
my risk to take you on either as a tenant or as a client, if you're a credit card company or a bank, it really does matter. And I think a common thread through a lot of the things that we've talked about is that you think through things as a business, just like your network statement, there's assets and liabilities, there's ups and downs to everything, pros and cons to everything. And if you start thinking about money this way, and not just money, but things in your life this way, your decision making becomes a lot clearer. And now rather than just
01:17:21
Speaker
going on in motion, you actually have data and a framework of which to make these kinds of decisions that you can be confident are pretty good decisions. And the regarding credit, the best way to get out of credit card debt or credit trouble is to never get in it to start with. Just don't get in and start with. You're not missing out on joy in life if you don't go buy that breakfast. You're not missing out in the joy of life and living if you don't have that brand new car.
01:17:49
Speaker
And if you do think that, then you got some living to do and some like some reflection on your own value system to do because I can tell you there's the calm. Life is tough enough. Life is tough enough as is without having to add money problems to it, which I think we're at number 10, ignoring medical and other benefits.
01:18:11
Speaker
When you're in the military, your medical is covered, but that's not it. You've got other kinds of benefits. You get BAH, which is a tax-free monthly payment for housing. You get BAS, basic allowance for subsistence, which is a little bit, not a lot, couple of hundred bucks for food every month. And you got medical insurance, which if you've ever had a conversation with your civilian counterparts,
01:18:33
Speaker
and you compared what they pay for medical insurance or health insurance and what you pay, you're almost ashamed and you're kind of disgusted and sad for them that they have to pay what they pay. I'm not saying the military medical situation is the best out there, but I'm saying it's not expensive and it's effective. So we've got it pretty good when it comes to that, even in retirement.
Weighing Military vs. Civilian Financial Pros and Cons
01:18:56
Speaker
No, we absolutely do. And I think it's something that people overlook when they decide to get out of the military or not. There's always more than one factor in that decision and everybody has to make it, whether they want to stay in or get out. But especially if you only have four to six years and maybe you're a high school graduate and you're going to look to be a police officer or firefighter or whatever that, you know, maybe is not the highest paying a job that's out there.
01:19:25
Speaker
But you'd think maybe it's comparable total income wise, but you really have to look at the total package in my mind as to the financial benefits and that medical piece is a huge factor. And there's two parts to medical in those insurance premiums you're going to pay every month and then a deductible.
01:19:50
Speaker
And this goes for auto insurance also and any other kind of risk liability insurance you are paying for. But if you're deductible is what you're going to have to pay out of pocket if you go into a claim. So medical insurance can have very high deductible. So you may talk to somebody
01:20:16
Speaker
out in the civilian sector and, oh, well, it's only maybe $300 a month for my entire family to cover our medical expenses and not the premium. Well, ask them a little more details on that of, okay, well, if you get into a situation where you have to make a claim, what do you have to pay?
01:20:36
Speaker
What's that deductible? Does it cover your prescription medications? Does it cover other wider things that all of a sudden, if you start adding up how much you do pay over the year, it can be very different, especially compared to military. So in doing that budget analysis, deciding to get out of the military, I think medical was a factor that people have a tendency to overlook.
01:21:04
Speaker
Yeah. Military life is tough. It really is. And me as a surface warfare officer, I know if you're enlisted and you're listening to this, but you're an officer.
01:21:15
Speaker
Look, ship life is tough. It's very, very tough. I'm not gung-ho military. I'm very proud of my service, and I know Rick is, of his. But I'm not gung-ho military. I don't advise it for everyone. But for those who are in, or those who think they're going to be in one day, I do advise making data-driven decisions.
01:21:37
Speaker
and we're all human, we all have bad days, even a bad year, or I've had them in my career, I've actually thought about getting out of the Navy at my 16 year mark, which is crazy, but that's to show you how tough it is. I don't want somebody to listen to this and think that the grass is always gonna be greener in the civilian world.
01:21:58
Speaker
It is not. And I tell you one of the overarching decisions, and I'm not advocating people stay in, but I do think you need to think about it as fairly and as independently. And of course, emotions play a role in that. But I remember I was in Pensacola, I was teaching newly commissioned officers leadership, and I was walking on base, and it might've been out in town, I don't know, but I was in uniform.
01:22:26
Speaker
And this gentleman said, I was in the military, I served, and I should have just stayed in because I would have been retired by now. He was probably late forties. And that's not the only time that's ever happened in my career. But I tell you what, I hold on to that because it's easy for us to think that we're different than everybody else. I urge you not to think that.
01:22:46
Speaker
Statistics are statistics for a reason. We are human. We have our own unique abilities, desires, drives, motivations. But when I thought about the decision to stay in or get out, that conversation stuck with me. I had very bad days in the military, very bad days. But I also believe that I was no different than that person and that I too would probably regret it if I got out.
01:23:09
Speaker
Now taking a step back, there are times to get out. If you're going to get out of the military, Rick, do you want to talk about that? Like, sure. Absolutely. Getting out here are some things that you need to think about. It's a personal decision for everybody and everybody's in a different situation. I'm a pilot.
01:23:26
Speaker
airline industry is looking for pilots and hiring and going and finding a job if you want to go fly or whatnot is a lot easier than it was 10 years ago. That may be a huge factor for somebody in the fact that that's all I want to go do. So there may be a... There's a push and a pull. Is there something pulling you out of the military or is there something pushing you out of the military in the fact that I just don't really like what I'm doing in the military?
01:23:52
Speaker
And you know, everybody has different factors in that. But I would say if you just feel like a little uncomfortable being in the military because it's hard work and deployments do wear down on you or whatnot.
01:24:06
Speaker
I think that's where the factor of things we just discussed today as to, well, okay, am I really looking at that benefit in the right lens of what I get out of the military versus out in the civilian side? Because you can't just go out into the civilian side and, you know, think
01:24:26
Speaker
that it's going to be the same as the military financially. Psychologically, physically, everything is going to be different when you leave the military. But on the financial side that we're discussing here today, you do need to have data-driven points or whatnot to help you make that decision. I think for me, it's around the 12-year mark. And I'm not sure how different services are as far as rank progression and things like that.
01:24:52
Speaker
But for me, it's about the 12 year mark. If you're coming up on your half to retirement, meaning in the military, you can retire at 20 years for a pension and medical coverage forever. If you, so logical time, you think about like balancing age, energy,
01:25:09
Speaker
other things you might want to do. You might have a degree in something that you actually want to get out and use, which you're probably not using in the military career. Those things all come into play, but I usually have, I think a reasonable choice is to like think about your halfway point. You've got enough data at that point. You know, the lifestyle you kind of either you're good at what you do or objectively, maybe you're not as good as you should be at that point in your career. We've all seen this kind of
01:25:33
Speaker
of people in the military too, just like in the civilian world, I'm sure. You wonder how they got to their rank and you probably know where you are in that hierarchy of effectiveness at what you do. But- Yeah. Think about where you're getting it. Go ahead.
01:25:49
Speaker
Yeah, another factor on that too, I'm trying to say the benefits of what's inside the military, but there's also benefits, the veteran affairs benefits that you have when you do leave the military. So, you know, take those factors into account also, be hospitals, assist veterans all the time in
01:26:12
Speaker
depending on your situation and what you can get benefits for. But I recommend there's a podcast that's run by the VA that's online. You can Google it and they've got a video chat and everything else where
01:26:30
Speaker
Any kind of bit of information of VA benefits that you may have available to you, whether you served four years or 14 years, it doesn't matter. There's VA benefits out there and that may be available to
Conclusion: Financial Wisdom and Recommended Readings
01:26:45
Speaker
you.
01:26:45
Speaker
Well, Rick, today we talked about the 10 money mistakes young adults make when they first get their consistent paychecks, whether that's military or civilian career. Those were not contributing to their Thrift Savings Plan or their 401k, not opening up a Roth IRA, excessive disposable income spending, buying an expensive car, buying expensive recreational toys,
01:27:09
Speaker
co-signing loans and leases, loaning money to friends and family, lack of knowledge about credit scores, neglecting adequate insurance, and ignoring medical and other benefits that we get in the military. Thank you very much for talking this through with me, and it's good to catch up with you. It's been a while. Actually, this is the first time we've seen face-to-face, actually, since, I don't know, what, two, three years? Three years, at least, three plus years. Wow, it's been a long time.
01:27:36
Speaker
Is there anything you'd like to share with the audience right now? Yeah. I mean, I'm a big reader. Um, so I'll throw a book recommendation out there called the psychology of money. I have no connection to this book at all. Um, uh, I ran into it, uh, I think last year it's by Morgan household.
01:27:55
Speaker
And I almost felt like my parents wrote it and the fact that it was just kind of their same style of how to look at money. But more importantly, I think that the psychology aspect of it, and I think this author is maybe more on that than really an investor type or not really an investment book. It's just kind of looking at
01:28:19
Speaker
how you should look at money. And everybody does look at money differently. And so very interesting book. And then just the time value of money. My dad told me when I was in high school, if you contribute to your IRA from age 20 to 30, and then never put another dime into it, you'll have about the same amount of money than if you maxed it out from age 30 to age 60.
01:28:49
Speaker
Um, and at age 60, you'd have about the same amount of money. So getting that early headstart, um, is a huge factor. And then I even did the numbers this morning where in that 10 years, if you 65, about 6,500 is what you can put into an IRA, $65,000 worth of investment from age 20 to 30, or do you want to invest $195,000 from age 30 to 60 to have the same amount of money at age 60?
01:29:19
Speaker
That was always an eye opener to me when he was telling high school. And it really inspired me to, okay, when I get out there and I get that job or whatnot, I'm going to start saving. And it motivated me to do that. And then I see that in my accounts today.
01:29:37
Speaker
But yeah, thanks for having me on. This was fun. I'm glad we could do this and thanks for asking me to do it. Well, thank you very much for doing it and thank you all for listening. Talk to you again soon.