Saving and Investing for a Military member

[easydoesit]

Hey everyone, this is my first post and I figured this would be a good place to start for some info. As stated in the title, I am enlisted member in USAF and I am 20 years old. My question centers around where to begin at a young age of finance. I had no idea where to begin so I stopped in to the book store and picked up Financial Peace and My total money makeover by Dave Ramsey in an attempt to gain some insight. Since reading, I've saved about 3500 as a 3 month expenses fund, started a Roth IRA in which I contribute 15% of my income to monthly and I have no debt. I make $1729 before taxes so roughly around 1400 take home and it equates to about 3100 into the Roth IRA. My question is now that I've established a savings fund and a retirement account should I be looking to max out the IRA and placing the rest into savings? Any help would much appreciated!

[mcfroggin]

Max out that IRA

[danieldroga]

That is a good plan. Anyway welcome to this forum.

[kork13]

First off, I'm really glad to see you asking these questions... I'm in the military as well, and I can't even count the number of people (especially young airmen) who get themselves in money trouble just because they don't take the time to plan and figure out what's smart for them. So stick with it and you'll do great.

As for what to do with extra savings, it depends alot... How much do you have to save every month? Besides retirement, is there anything you want/need to save for? If you don't know or don't have goals like this thought out, you should take some time and do so.

Those things aside... If you can, you should definitely take advantage of the tax-free growth you'll get in the Roth IRA. Try to max it out ($5k/yr, or $416.66/mo). If you can't afford that yet, just make that a goal to eventually work toward. However, if you have other savings goals to cover as well, don't totally sacrifice those at the expense of your Roth. 15% is good for now, more is always great, but be sure to still take care of everything else.

One other thing you should look at... Do you get a large tax refund? It just looks like you have MUCH more taken out each month for taxes than you need to. You may need to adjust your tax withholding (you can do it on the MyPay site).

[creditcardfree]

As you progress in your career, and max out the Roth Ira, but still want to save 15% of your gross income, remember that you have opportunity to invest in the TSP (Thrift Savings Plan) also.

Sounds like you are off to a great start!

[Goldenladyfun]

Hi Sir, First let me thank you for your service to our country. I really appreciate it. As far as your handling of your money I really can not advise you. I have my own opinion about your assets and how to protect them. Read that book called "American Freedom" by Charles Erwin.

[Like2Plan]

Originally Posted by easydoesit

My question is now that I've established a savings fund and a retirement account should I be looking to max out the IRA and placing the rest into savings? Any help would much appreciated!

It looks like you are doing all the right things--keep up the good work!

At your age, you may have some big expenses before you, so you may want to take that into consideration for your savings goals. It may not always be as easy to save money--after you get married, have kids-et'c. Maybe you will want to buy a car or a home at some time in the future?

So, anyway in addition to your retirement savings you may want to take some time to think about future goals and time horizons and factor that into your savings plan.

I know, I know--you're only 20 and I already have you married with 2kids, a dog and a house payment--but this will make a difference in advice on how to invest for future goals.
Another tool you can use for investments is the TSP. link to TSP info It is the goverment's version of a 401K, so it is a retirement fund. At your current tax rate, I would recomend investing up to the limit on your Roth just like you are doing. After that, you have an option to invest up to $16,500 in the TSP. This money is not taxed until you pull it out at retirement. So, it is not a good investment choice if you want to use the money to buy a house because you would pay taxes on the money plus a penalty if you pull it out before age 59.5 (gets back to thinking about your goals). It is a good choice if you want to invest a little more money (after you max out your Roth) in a tax advantaged retirement account with a low expense ratio. You can set this up so that it comes right out of your pay.
The investment choices on other savings options would depend on how soon you want to use the money. For example, you wouldn't want to invest solely in stocks if you planned to use your savings to purchase a car in the next year or so because there could be a lot of volitility in the short term. ( Your car account could shrink to a moped. )