Outlaw FinanceEverything You Never Learned In School

Aggressive Allocation

I am a very risk tolerant person and therefore my retirement account is invested heavily in stocks.  In fact more than 95% of it is in stocks.  I know most out there would say that I am crazy and that I am going to loose my shirt.  Well you would be right I did loose more than 40% last year in my account.

Why I can be so aggressive

I can afford to invest so aggressively due to the fact that I am a career military man and I I have a defined pension.  The military pension is one of the most lucrative out there.  I will receive 50% of my base pay upon completing 20 years of active service.  This pension is payable once I exit the active duty ranks.  I do not have to wait until I am 55, 62, or even 65.  Nope I get to start receiving a retirement check when I am 38 years of age (that is when I am eligible for retirement).

This pension I count as having retirement funds in cash.  That is why I feel that I can invest the 10% of pay that I place into my TSP account almost entirely into stocks.  If you are lucky enough to have a defined pension plan as well as the option of a 401k I think it makes perfect sense to invest aggressively while you are young.

As a Marine leader I am in a very unique situation than most people that will read this blog.  I am responsible for ensuring that the Marines under my charge are not only tactically and technically proficient, but are also responsible adults and good citizens.

The majority of the Marines that work for me are under the age of 21 and are getting a steady paycheck for the frst time in their lives.  Up until the time that they joined that Corps most of these guys have been living at home with mom & dad and have not had to worry about their finances.

The first thing that I do when a new Marine checks into the unit is sit down with them and talk to them about what I expect from them.  I let them know that I am not a financial advisor and what I tell them are just recommendations and suggestions.

First I advise them to live within their means and budget.  I let the know that credit cards are not bad but to make sure that they are not living on them.  I tell them my story of how I got myself into a financial hole and how I am digging out of it.  I explain to them how i am spend over $500 a month on payments to get me out of this hole.  I let them know that of that 500 bucks more than half of that is going to absolutely nothing in the form of interest.

My next piece of advice is to be careful when buying a car.  Unfortunately there are dealerships and used car lots around military installations that provide easy credit on subpar cars and take care of young inexperienced service members.  My advice for this is to go to a reputable dealer and to secure financing through their financial institution prior to setting foot on a car lot.

My third piece of advice for these guys is to start an emergency fund.  Even with a steady paycheck for another 3-4 years I explain to them the importance of having a safety net for not only when they get out, but also to have some money set aside in case of a true emergency (car problems or emergency flight home).

Last but not least I explain the Thrift Savings Program (TSP) to them.  The TSP is the Government form of a 401k.  While there is no matching contribution for active duty military members I explain to them that importance of saving for retirement now vice later due to the powers of compound interest.

I hope that by doing this my Marines won’t make the same mistakes that I did.  I know all the guys wont listen to what I have to say but I hope that I can keep some from going down the path that I did.  Hopefully the lessons that I try and teach them now last them for the rest or their lives and they can be financially reponsible individuals.

Like many out there you probably spent more than you though while shopping back in December (I know I did).  It is now time to face those credit card bills and get yourself out of the hole.  Here are some steps you can take:

1. Develop a Budget

Start tracking your expenses, line by line, to see exactly where your money’s going each month. Cut back on your discretionary spending and apply those funds to your credit cards.

2. Set Realistic Goals

You can’t expect to lose 50 lbs in a month so don’t expect to pay off thousands of dollars of debt by the end of next month.  Instead make a realistic goal (an extra $50 a month to bill A) that you can stick with.

3. Plan Strategically

If you have more than one credit card , focus your biggest payments on the card with the highest interest rate. Once you have paid off this debt roll that payment (snowball) it onto the card with the next highest interest rate.  Keep doing this until you have paid off all your credit cards.

4. Transfer balances with Care

Consider transferring your balance  to a new card with a lower annual percentage rate as long as you can pay it off before the rate resets or it will reset at a rate equal to or lower than what you have now. Many cards offer extremely low rates for an introductory period, but make it up through high fees and a sky-high interest rates after a few months.

5. Save for Next Year

Once you pay off all those holiday debts start saving for next year.  There are many ways to do this.  Set a small amount aside from every paycheck into a special savings account.  Another way that I save is by putting all my extra change and cash it all in in early December.

If you have ever shopped at a department store you have been offered a 10% discount to open a store credit card.  While it may be tempting to open a new card and save that cash is it really worth it?  Unless you are going to make a payment right then and there to pay it off it is probably not worth it, and even then they may not be worth the hit on your credit score.

What makes Store Credit Cards bad?

1.  High interest rates Department stores will give a credit card to almost anyone.  With the ease of credit comes a high interest rate.  It is not uncommon to have interest rates above 20% on s store card.  I am sure the card in your wallet is less than that.

2.  Credit score hits If you go out shopping and open an account at every store you start to take hits on your credit score.  The more credit you have available can lower your score regardless of how much you owe.  Also multiple credit requests in a short period of time can and will ower your score.

3.  No rewards The credit card that you have in your wallet more than likely has some type of reward system tied to it whether it be cash back or a points system.  Most of your store cards are not going to provide this.

Store credit cards aren’t always bad especially if it is a store that you shop at regularly.  Just like all credit cards you need to make sure that you use them responsibly and don’t spend more than you would if you used cash.

Ask 100 people for money advice or advice on personal finance and you will get 100 different answers I can almost guarantee that.  Although you get hundreds of different answers many of them will contain at least one of the 7 items below.  If you follow the 7 rules below you will keep yourself out of financial trouble.

1.  Don’t carrying a balance on your credit card. Credit cards are great tools if used properly.  They are great for tracking your spending habits.  You can earn cash back or other rewards with rewards cards.  If you lose them you aren’t liable for purchases made (as long as you report them).  Carrying a balance means you are paying interest and when you pay interest in excess or $200 a month (as I am now) you realize that you are just throwing away your money.  Pay your credit card in full each month and take your cash rewards or points and use them.

2.  Start saving now. Compound Interest is the most powerful force in the world.  The sooner you start saving the longer your money has to grow.  $1000 invested for 40 years at 8% interest grows to $21,724 years.  If you wait 10 years you need to invest $2150 and then you are still have $90 less.  So start saving now and let interest work for you.

3.  Don’t miss out on free money. Most companies that offer a 401(k) offer a company match.  Now I have seen some matches that aren’t that great and others that are outstanding.  My friend worked for a company that matched 1/4% for every 1% he put in up to 2%.  Basically he had to commit 8% of his salary and they commited another 2% for a total of 10%.  On the other hand McDonald’s has a generous 401(k) that alows some managers to recieve 16% from the company for investing as little as 5%.  Whether you match is dismal like my friends or great like the McDonald’s one it is still FREE MONEY.

4.  Pay yourself first. Don’t wait til the end of the pay period or month see how much you have left and then commit that to savings.  Instead set up an automatic savings plan.  Set aside a set amount each time you get paid and have that transferred into a savings account.

5.  Don’t trust friends or family if the bank doesn’t. If a bank is asking for a cosigner on a loan it means that the person asking for the loan either has shotty credit or doesn’t make enough to get the loan themselves.  If this person doesn’t pay the loan the bank comes after you.

6.  Driving upside down/rolling cars into each other. Vehicles are an asset that do not appreciate.  In fact they depriciate at an incredible rate.  Always try to put down at least 20%.  Also if you are upside down on your car don’t trade it in on a new car.  Why would you add 1000s of dollars to a loan on something that won’t even be worth what the “sticker price” was once you drive it off the lot.

7.  Ensure to Insure. Make sure that you carry enough insurance not only on your car but also on your homeowner’s/renter’s policy.  God forbid you get in an accident or something terrible happens at home and you don’t have enough insurance to replace/fix everything that was damaged.  Also make sure that you are properly insured both life insurance and medical insurance.  You don’t want something to happen to you and your family be loaded with hospital bills or left high and dry if you don’t have life insurance.

These simple steps will get you on the road to financial freedom.

While creating a budget is not my idea of a fun Saturday night budgets are an integral part in getting your finances in order.  Before you do anything you need to know how much money you have coming in every month.  All you need for this is your pay stubs.  Also if there is any other monies coming in make sure you account for them as well ( IE child support, alimony, settlement payments, and interest).

Next we need to figure out where our money is going.  To determine where your money is going gather up as much information as you can: bank statements, utility bills, credit card statements, Etc.  You want to gather as much information as possible so that you can get an average of what expenses you are paying out each month.

Make two list of expenditures fixed and variable.  Fixed includes things like mortgage or rent, car payment, minimum credit card payments, utilities etc.  These payments are payments that you have to make every month.  Variable expenses include gas, groceries, entertainment etc.  Variable expenditures are important as this is where your “extra” cash is going to come from.

You have now created a budget and know where your money is coming from and going out.  Hopefully your income is greater than your expenditures this will make getting yourself out of debt a little easier.  If you are spending more than you have coming in you are going to need to drastically change your spending habits if you want to get out of debt.

I joined the Marine Corps more than 13 years ago and right out of high school. I have had steady paychecks on the 1st and 15th ever since. While I have never struggled for money I have never been financially secure either.

While my paychecks were always steady and could always be counted on they were almost always gone by the time the next one came around. I was living paycheck to paycheck and to make matters worse I was also racking up some serious debt on my credit cards.

I was fine with the way I was living my life up until about 2 years ago. I realized that I had been wasting tons of money and that I needed a plan to get out of debt. I have been working on that plan ever since.  At that time I had approximately $50,000 in debt.  Unfortunately I do not know the exact number as I was afraid to actually face it.

In the middle of 2007 I received a re-enlistment bonus for agreeing to another 4 years of service in the Marine Corps.  Of the $28,500 I received $17,100 dollars after taxes and TSP investment.  Although I should have paid more on my debts I did get myself into a more manageable situation.

As of Jan 1st I am left with three outstanding accounts.  1st is my car payment on my 2006 mazda 6 on which I pay $450 a month.  This is slightly more than the payment but it is just easier to budget this way.  The next is my consolidation loan which I owe $13,500 and am paying at the rate of $450 dollars a month as of right now (hoping to raise this amount soon).  This is a student loan that I have from back in 2002 when I went to school for my Microsoft certification.  That loan is just over 3,000 and is paid at a rate of 69 dollars a month.

The focus of effort for me is to get the consolidation loan paid down as quickly as possible for it has the highest interest rate as well as the most impact on my credit score.  As money become available I will add that to the payments I make on that debt.

I hope that I am able to share with you advice and stories so that you do not get yourself stuck like I did myself.