5 Worst Financial Mistakes to Avoid for Military Members

Updated : Oct 19, 2019 in Articles

5 Worst Financial Mistakes to Avoid for Military Members


All right this is rich from rich on
money.com and today I’m going to talk to you about the five worst financial
mistakes to avoid for military members but before I get into that let me first
talk about quickly Who I am again I said it already rich from richonmoney.com and I have a website where I talk about basically how to kick ass with
money if you’re in the military or if you’re a vet and also how to kick ass in
real estate but today it’s more of a how to avoid screwing up with money and how
to avoid screwing up in real estate so I’m gonna basically get into that today
and I’m gonna list five different ways to avoid screwing up badly four of them
are more money related in the last one the last ones real estate and I think
that one’s the most important just because real estate tends to be where
the biggest amount of money is spent you’ll have to forgive me today because
I might be a little bit ornery a little bit preachy I might get a little bit
into it just because this is a serious subject and you know I’ve been around
for a while I’ve been around military members for a while
and non-military and I’m just seeing too many people screw this up and so I want
to get the point across so you know again I’d be a little bit preachy but
let’s dive into it now if this is something that you guys guys and gals
like please give it a thumbs up and please leave some comments and let me
know where you’re like listening from and let me know what you think so with
let’s just get started let’s dive into this five worst financial mistakes to
avoid for military members the first one is going into debt I’m kind of I’m kind
of trying to do these in an order that makes sense and people tend to go into
debt first that’s kind of where they get screwed up how do they go into debt you
go into debt by living large right living large when you haven’t really
made that money yet spending money you haven’t earned yet keeping up with the
Joneses competing with the Joneses the Joneses
are trying to keep up with the u2 here’s some examples of how people do it
buying or renting much more house than you need I see it a lot in the military
it surprises me I’m always kind of surprised if you’re like there’s just
the two of you or maybe it’s like the two of you and a baby but somehow you
know you decide that you need let’s say like a 4,000 square-foot house you know
six bedrooms four bathrooms no I mean maybe you figure you’re gonna grow into
it but if you’re gonna go several hundred dollars over you know your bah
you know just because like it’s got great schools and you know I I like the
neighborhood I want to caution you to do the opposite get the smallest property
that will fit your needs like oh that’s no fun I realized that that you’re gonna
be so much better off if you do that having a new house that’s custom built
kind of along the same lines a lot of people do this and I think it’s just
sometimes we get this sense of like an entitlement like you know I’ve I’ve been
in the military for a while my spouse is working you know we’re doing well we
deserve it we deserve this new house I want to give my wife or my husband the
best right I think you are much better off living in the smallest house that
you can that fits the needs of your family right and putting that money
aside for many many other things and putting that money aside for the future
and maybe by the time you get out of the military you’ll have this massive
awesome nest egg we’re doing something like that will be much more of a reality
I think sometimes people custom build these houses before the income is really
there and then you got it you know then you got to fill it up with new furniture
and nice cars in the driveway because that makes more sense and none of those
things you can really yet newer expensive cars this is a net
worth killer do not do it and what I want to see on top of this is military
car sales and then like when you’re overseas like they’ll give you a great
deal for a new Volvo new Mercedes like you know all these programs that you
have when you’re when you’re overseas for getting a new car delivered to your
specs to your front door when you piece us back to the States
do not do not do these things all right oh but it’s like a special program that
saves the military money no you’re not getting a special deal all right you are
still paying for a brand-new car and you get killed on appreciation the second
you drive it one mile you know it’s getting reduced by twenty
or thirty percent on the first time you turned that and start it up and it is
just a horrible horrible investment do not buy a new and/or expensive car
vacationing well overseas there’s this competition in the military there’s like
a Facebook and an Instagram competition everybody is just doing these awesome
trips everywhere while they’re living in Europe while you’re at Ramstein do car
or I was when you’re in Japan there’s so many cool places to go and everybody is
going there and you’re seeing everybody else go and you want to go and you want
to see the world and you want to see if you can do all 50 countries in Europe I
don’t know if there’s 50 countries I’m not good at counting you know maybe
while you’re there these are bad ideas okay you should anyway you want to go an
awesome cruises like everybody else try to avoid the vacation try to avoid the
cruises and avoid the vacations that require lots of flying and hotels these
are very expensive things take advantage of existing geography take day trips
take trips that are closeby try to use Airbnb instead of hotels try to cook
your meals and Airbnb is instead of expensive hotels and take a take
advantage of the existing geography just my two cents I want to give the Cardinal
sins of debt cardinal sins that I just love to talk about because I think
they’re so so bad sorry if you’ve done some or all these things leasing a car
leasing a car kind of like buying a new car but almost worse never ever ever do
it if you’ve done it never do it again boats and motorcycles hopefully I’ve
done both boats and motorcycles very very wasteful very very very expensive
okay I don’t know maybe it’s just very important to you but if you’re looking
to get somewhere financially I would avoid both of these things if you can
I’ll get some hate mail on this from the tens and tens of readers that I have or
maybe Watchers in this case for God’s sake do not ever buy a timeshare
timeshares are the worst thing in the world you are
pre paying for like years and years of vacations at a overinflated price that
you cannot get out of it is a horrible horrible idea Airbnb at your leisure is
a much much much better idea do not ever buy a timeshare you are severely
overpaying end of rant next my number number two number ones debt number two
is delaying paying off debt so you’re in debt I forgive you
number two is delaying paying off debt do not delay paying off debt here’s some
examples of this you’ve got a bunch of credit card debt you own a timeshare you
leased a car you’ve got a Harley in a boat okay I understand that but guess
what now you want to go on a cruise now you want to invest in a rental property
you know now you want to put a bunch of money in the stock market well wait you
shouldn’t do any of those things until you start paying this other stuff off
you need to prioritize pay this stuff off ever heard of like
Dave Ramsey’s baby steps debt snowball pick the worst piece of debt you have
and pay that thing off first knock it out and do the next one knock that out
get of all the debt I want you to include
your student loan debt – you don’t have to include your primary residence that’s
okay dad it’s not good debt it’s okay dad but get rid of your debt before you
start piling other things back on that’s what I’m talking about when I say
delaying paying off debt it’s like you’re adding things on when you haven’t
got rid of the other things that you already burdened your stuff with first
number three on the list not maximizing your retirement benefits dude come on
let me talk to you about this I think this is a big issue for military members
and I want to I want to stress this to everybody not maximizing your retirement
benefits the problem everybody has they don’t understand exactly what their
retirement benefits are a lot of people don’t know a very simple fact that I
want you guys to be clear on right now clear on what it is for everybody and
then clear on what it is for married people for everybody this is the case if
you’re in the military everybody can have a TSP account which can be maxed
out at $19,000 a year in 2019 and an IRA account which can be maxed out at 6,000
and you should do both you should max out both if you can and then if you’re
married if you have a spouse your spouse can also max out his or her IRA whether
or not they’re working a lot of time oh why why my spouse doesn’t work so she
can’t have one that is not true whether or not she’s working or he’s working
they can put money in their IRA so ideally you’re maxing out your TSP at
19,000 you’re maxing out your IRA at 6,000 and you’re maxing out your
spouse’s IRA is $6,000 before you’re doing other things like investing in a
rental property leasing a car putting money in the stock market buying two
Harley’s you’re doing this first why because it’ll it is your legal way to
cheat on taxes do not skip this this is your future this is your
retirement part of your retirement now you might get a pension – from the
military awesome but you want this – this is very very important do not skip
this okay maximize your retirement benefit this is
an I cannot skip step it is absolutely super important must be done don’t get
in debt don’t delay paying off debt and maximize
your retirement benefits these are just must dues alright number four drumroll
not investing properly this is a very big mistake that people make I’m not
gonna sit here and tell you today how to invest and I have lots of stuff on how
to invest in my website it’s not how to invest it I’m gonna tell you it’s what
not to do then I’m gonna tell you today cuz not investing properly is number
four and I’m just gonna tell you the is there four things under number four I
think there is the four items under number four not investing properly that
I’m going to warn you about here’s the four things within investing to avoid
chasing hype do not chase hype what is hype bitcoin is hype bitcoin are things
like bitcoin if everybody’s talking about it if everybody’s writing about it
if everybody’s making money doing it like on a daily basis if you think you
can day trade and make money then I want you to leave something in the comments
and then I’m gonna reach through the screen and choke you but anything that’s
hype it is kind of like oh yeah everybody’s talking about I’m gonna make
money around the water cooler IPOs newest technology next hot thing media
all the time it’s hype don’t do it you’re not gonna
make money you’re gonna lose money it’s too late number two chasing returns if if you see that everybody’s making a
lot of money in something it’s kind of like hype a little bit different
sometimes it can be something maybe more legitimate but you like looking at
you’re looking at a chart right maybe like morning star ratings you’re like oh
look with the last couple of years this made tons of money I’ll just put on my
money here because I made tons of money in the last couple of years that’s the
wrong way to look at it just because something made money in the last three
years doesn’t mean it makes money in the next three years it could have been
because the market the last three years was favorable and it’s not gonna be
favorable now there could be lots of reasons why you don’t just chase returns
you don’t just look and see what stock or what mutual fund did grade the last
three years and put your money there and be like well it’s obviously you know did
great last four years it’s gonna do great the next three years that’s not
how things work in fact it’s more likely that if it already had its good run its
run is over now so don’t chase returns eggs in one basket this is like if you
work at a company like apples probably an interesting example it hasn’t you
know it hasn’t like crumbled right but if you work at Apple and the only way
the only type of retirement benefit that you have is it are money’s in Apple’s
stock and then through some very strange you know a stroke of bad luck about
about the same time that you decided to retire somehow Apple like went bankrupt
you would literally have like no retirement right your money and your
money will be gone that seems very unlikely but that happened to my
financial adviser who worked at a very very big financial firm called Bear
Stearns Bear Stearns was massive it was like fidelity investments or Charles
Schwab it was equal in size if not bigger than those companies and it
crashed in the 2008 you know like real estate and banking sort of bubble it
crashed and my financial advisor lost all of his stock options which were
millions of dollars he lost it overnight what my point is
you don’t invest in one company or one stock you don’t put all your eggs in one
basket timing the market you don’t want to time the market what does time in the
market means it means that when things get scary like what happened in in in
2001 when the stock market started crashing or in 2008 I think when the
stock market started crashing you don’t like oh let’s talk where it’s starting
to crack the stock where it’s crashing so I’m gonna sell on my stock and then
I’m gonna wait for it to go down and then when I think it’s really low I’m
gonna buy back in again and I’m gonna write it back up that’s called trying to
time the market it doesn’t work if you try to do it ten times you’ll be
successful once and you’ll fail nine times what you’ll usually end up doing
is selling at the wrong time and buying back in at the wrong time and losing
more money than you would have if you had just left your money damn alone
timing the market does not work don’t time the market you need you just if
you’re invested in a and na-na what I would call a safe manner and in a normal
manner you’re gonna be invested in such a way that when that type of
quote-unquote crash happens you should just leave your money put let it crash
let it recover and just don’t touch it number five on the list I want to go
through these again number one was going into debt number two was delaying paying
off debt number three was not maximizing your retirement benefits number four not
investing properly number five is the most important buying houses that won’t
make good rentals I’m the real estate guy and their military real estate guy
and this is the one that I am the most passionate about so I’m gonna going to
harp on this one if this is good stuff today please give me a thumbs up leave
something in the comments about what you think about
all the stuff military members tend to think as most people do that wealth is
built by purchasing properties and that wealth is wasted by renting properties
that is not true if you’re in the military if you’re in the military
wealth is wasted by buying properties okay and it is built by renting
properties and and doing all the other four things that I just talked about you
are usually worse off buying properties in the military because you’re moving
everyone to three years and that life doesn’t lend itself to buying houses
okay there’s this weird myth in the military that if you buy a house at
every Duty assignment and then retire turn them all into rentals you’re gonna
be wealthy that’s wrong you’re not gonna be wealthy gonna be poor why because
most of the houses you bought end up not being good rental properties because you
didn’t understand the concept of what makes a good rental property I’m gonna
explain that to you now if you’ve read my website you probably already know
this the 1% rule is very important here the 1% rule is as follows if you buy a
property and that property can rent for 1% of the purchase price plus the fix-up
price in other words the acquisition price if it can rent for 1 percent or
more of the acquisition price then it would probably make a good rental not a
guarantee but probably make a good rental example if you buy the house for
90,000 and it just needs 10,000 to get fixed up acquisition price of $100,000
if it can rent for at least 1% of that $1,000 or higher it might make a good
rental property now if it’s gonna rent for less than $1,000 it’s not gonna make
a good rental property that’s the test you need to give to properties that
you’re considering buying while in active duty now if you’re in Hawaii or
Los Angeles or New York City or San Diego you’re not gonna pass the 1% rule
don’t buy a property is gonna be a poor investment that’s
what I’m telling you guys buying houses that won’t make go to rentals while an
active-duty will lose you lots of money come time to move away you’re probably
not gonna have enough appreciation to make a difference
you’re probably gonna potentially lose money if you sell and when you turn it
into a rental you’re gonna think you’re breaking even or making a couple hundred
a month but when it comes to expenses that you really don’t quite understand
you’re actually losing money you’re losing money because you’re you’re not
really calculating all the expenses that occur throughout the year that you’re
not necessarily seeing like the insurances insurance and the tax and the
maintenance and the deferred maintenance HOA there’s just a lot of expenses that
just creep in there that are on top of the mortgage that you’re paying every
month in fact they say that 50% of what you get in rent ends up being eaten up
by expenses so anyway don’t buy a house unless it’ll make a
good rental property I’ll just say it simple like that so that’s it in
conclusion stay away from the big debt traps prioritize getting out of debt
maximize your retirement benefits it’s a legal way to cheat on taxes make sure
you’re investing properly and only buy real estate when it makes financial
sense this is rich Cary signing off

3 Comments

  • Great video. I have a question, if I max out my Roth ira, am i able to pull out my original contributions without penalty if I have to for some reason before im 60?

  • Hey Rich. I'm looking at joining the reserves. I'm still looking into both airforce and national guard. I want to do it for several reasons but in terms of finance do you think this is a financially good idea? I currently work as a web developer and I would go back to that while in the reserves after training. I really value your opinion on stuff regarding money and the military so I can't think of a better person to ask this question. Best regards.

  • From those of us who have learned the hard way, can we get this as part of mandatory Basic Military Training? It would surely help others to hear sooner rather than later.

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