You can improve your chances to achieve financial security by controlling credit card debt, having an emergency fund, and setting aside a portion of each paycheck to invest in long-term goals, including retirement. Here are tips to build wealth through saving and investing while you serve in the military and beyond.
1. Be smart about credit card debt.
Credit cards charge high interest rates if you can’t pay off your balance at the end of the month. That interest increases the price you pay for the items you buy and may stretch your debt over many years. No investment will give you guaranteed returns to outweigh the high interest rate you pay with a credit card or other high interest debt. Pay down any credit card debt and live within your means.
2. Leave room to save and invest.
Get a handle on your monthly expenses. Understanding the income you have coming in and the bills you owe every month will empower you to build a budget that ensures you have room to save and invest for the future.
PRO TIP: One strategy for reducing your monthly expenses is avoiding an expensive car purchase. A car loan with a high monthly payment may limit your ability to achieve other important financial goals, like saving, investing, paying off debt, or having extra money.
3. Start saving and investing regularly.
There is a powerful formula when it comes to building wealth: REGULAR INVESTMENTS + TIME → WEALTH. The earlier you start, the longer you have to build wealth through investing! To put that formula into action, take at least two action steps:
- Start an emergency fund in a savings account at your bank or credit union and automatically deposit a certain amount of money directly into that account each pay period. That money can help you avoid going into debt if you have an unexpected expense.
- Invest regularly over time (for example, 5% or 10% of your income or some fixed amount that you can afford to contribute each pay period) and continue to invest over your entire career. Consider increasing your investment contributions if you can increase your income or reduce your expenses. Investing may have more risk than money kept in the bank, but it gives you a better chance to create wealth over time.
4. Consider starting with the TSP and an IRA.
The workplace retirement plan for active duty military and federal employees is the Thrift Savings Plan, or TSP. When beginning your investing journey, consider starting with your TSP because your contributions give you a tax break and, if you are under the Blended Retirement System, the federal government will match your contributions up to 5%—that’s free money! Learn more about the TSP at TSP.gov.
A second building block of investing is an Individual Retirement Account (IRA), which you can set up yourself. IRA contributions also offer tax advantages.
PRO TIP: Set it and forget it. Automate your contributions to your TSP and IRA to keep building wealth each time you get paid, instead of having to make multiple separate decisions each year to prioritize saving and investing.
When choosing an investment option within your TSP, IRA, or any other investment, a diversified fund that spreads your investment across many companies and securities (like the C-Fund in the TSP) may reduce the risk of investing. That’s because if one or a few stocks or industry sectors lose value in any given time period, your fund’s investment in other parts of the market may improve your returns.
PRO TIP: The TSP’s Lifecycle Funds (or L-Funds) are similar to private sector “target date funds,” and allow you to choose a date in the future (your target date, often retirement) when you will need your money. L-Funds and target date funds will automatically adjust the way your money is invested from a more aggressive, stockheavy portfolio earlier in your career to a more conservative mix of investments as you approach retirement.
5. Research investment professionals and opportunities.
There are steps you can take to protect your investments. If you plan to work with an investment professional, like a broker or investment adviser, look them up on Investor.gov. Make sure they are licensed and registered and review their employment history for red flags.
Also keep in mind that scammers use social media, texts, emails, group chats, and other means to promote bogus investments. If someone promises high guaranteed returns, ignore it. Promotions that make getting rich from investing seem easy or quick are likely scams. In fact, most successful investors build wealth by consistently investing a portion of their income over a long period of time.
PRO TIP: Research has generally shown that frequent trading is more harmful than helpful to your investment returns over the long term. Even frequent traders who make profitable trades may pay more, because short-term trading is typically subject to higher taxation than investments held for at least a year. For more information about taxation and investments, consult a tax advisor or visit IRS.gov.
Protect your money by watching out for these red flags of investment fraud:
- Guaranteed high investment returns with little or no risk
- Unlicensed, unregistered investment professionals
- Investment pitches you receive through group chats or social media
- Fake claims of SEC registration or endorsements
- Requests to pay money to withdraw your funds
Visit Investor.gov/scams for more information and tips to recognize and avoid scams.
