Eliminate Financial Stress

Eliminate Financial Stress

This article builds upon the previous article, “Not Satisfied – The Good, Bad & Ugly,” and provides an introduction to eliminating financial stress by: 1) creating a budget; 2) using credit responsibly; and 3) saving for retirement. This is important because finances are one of the major stresses in life.

The first step is to create a budget and use the following principles:
1) Don’t spend more than income
2) Pay bills on‐time
3) Have an emergency fund
4) Save for retirement
5) Use credit responsibly

Technically, it makes the most financial sense to pay cash for everything because it costs money to maintain good credit and pay interest on loans.

For example, a $100,000 30‐year home loan with 3.92% interest rate, will have a total cost of $170,213. If you paid cash for the same home then you would save $70,213. However, making large purchases in cash may not be realistic for everyone.

I personally use credit, but follow four principles for maintaining good credit:
1) Only borrow what you can afford
2) Pay credit card(s) balance each month in full
3) Make all payments on time
4) Use only a small amount of available credit

If you need a system to remove dependence on credit and build wealth, follow Dave Ramsey:
Dave Ramsey’s 7 Baby Steps
Step 1 – Save $1,000 for starter emergency fund
Step 2 – Pay off all debt (except house)
Step 3 – Save 3‐6 months in emergency fund
Step 4 – Invest 15% of income in retirement
Step 5 – Save for children’s college fund
Step 6 – Pay off home early
Step 7 – Build wealth

Dave Ramsey Links:

There are different methods to save for retirement, but here are three recommended ways:
  • Blended Retirement System (BRS) Thrift Saving Plan (TSP) ‐ similar to a civilian 401(k)
    • If you joined the military after 1 January 2018 then you are enrolled in BRS
    • Military matches up to 5%
    • TSP ROTH allows up to $19,500 in 2020 tax year
  • Individual ROTH investments – allows up to $6,000 in 2020 (per family member)
  • Stocks – Mutual Funds, Index Funds, or Exchange Traded Funds with low management fees
    • On average, S&P 500 index funds with low management fees outperform actively managed portfolios or mutual funds.  
Dave Ramsey recommends saving 15% of income for retirement, so if you have BRS, you should put 5% in TSP to maximize matching and then the next 10% in any other ROTH investment (TSP or Stocks) because ROTH has the best tax advantages.

An E‐1 only makes ~$1.6K per month so it may be difficult to save 15%, but Dave Ramsey has helped Americans at all income levels snowball wealth. Dave asserts we can all find at least $100 a month somewhere in our budget (eg. cut luxuries like Starbucks) and retire a millionaire.

Here are examples of returns based on annual percentage:
  • If you invested $104/month at age 25 for 40 years with a 12% annual rate of return, then by age 65 you will have $1,008,906
  • If you invested $181/month at age 25 for 40 years with a 10% annual rate of return, then by age 65 you will have $1,004,613
I personally invested all pay increases (to include flight pay) since Captain into retirement to maximize my ROTH contributions, but I am not a licensed financial advisor. This article is meant for education purposes and you should always do your own research before making any financial decision.


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