Saving and investing for your future

  • Published
  • By Lt. Col. N. Thomas Greenlee
  • 28th Medical Support Squadron Commander
ELLSWORTH AIR FORCE BASE, S.D. --  As I polled the young Airmen in my squadron for topics they thought would be useful and applicable in the early stages of their careers, several asked me to address the issue of saving and investing for the future. The multitude of investment options and those people willing to advise you, especially for a fee, can seem daunting. However, like most things in life, starting simple is often the best way to achieve traction and meet your future financial goals.

In my opinion, the simplest and most important financial tool that needs to be in everyone's financial inventory is a savings and checking account. A good rule of thumb is to invest a little each month until at least three months worth of living expenses are saved. This rainy-day fund will help get you through the unplanned events that occur in life - like the transmission going out in your car. The key to achieving this goal is to start small. Maybe you can only set aside $20 every pay period, but over time this amount will grow significantly. Starting early in your career is a must.

A common fact of life is that once we earn a promotion, or a longevity pay increase, our lifestyle will grow accordingly until this money is spent on unnecessary or nice-to-have items. A better strategy is to make a commitment to live off your existing pay and either save or invest the next pay raise. You will meet your financial goals much faster by containing your living expenses and saving the difference.

As you work to control your living expenses, make sure to pay particular attention to credit card debt. Carrying a credit card balance over a period of several months or years, can quickly offset any interest or growth you might earn on a financial investment, which is why I recommend you pay off this debt as soon as possible. Currently, the average credit card interest rate is 13 percent, but this rate can go much higher for Airmen who have not built credit or those with a poor credit history.

Once you have money in your emergency savings and have paid off your credit card debt, it's time to look at investing money for long-term growth and retirement. One of the easiest ways to start investing is with the government's Thrift Savings Plan. Money is contributed to your personal TSP account from your Leave and Earnings Statement before taxes, which will lower your taxable income. The TSP allows you to invest as little as one percent to as much as 100 percent of your base pay per year, as well as up to 100 percent of any incentive, special or bonus pay. (Currently, total military contributions cannot exceed $15,500 annually.) The TSP gives you several investing options - from lifecycle funds to funds that invest purely in bonds, large and medium U.S. companies stocks, small business stocks, and international stocks.

In my experience, the simplest method for a new investor is to invest with a lifecycle fund. This will diversify your monthly contribution amongst all the TSP bond and stock funds, which should lessen the risk of being heavily invested in a single type of stock (such as international stocks only.) The lifecycle fund also allows you to select a future date that you plan to retire and the TSP investment team will automatically diversify your money. Basically, the further you are from retirement, the more your investment will be geared towards stock funds to maximize your financial growth. As you near your retirement date, money is shifted to less risky investments such as government-backed bonds.

If you've already taken advantage of the Thrift Savings Plan and would like to look at other investing options such as Roth Individual Retirement Accounts, Certificates of Deposits, and regular mutual funds, there are many banks and mutual funds companies that offer low-fee families of funds and investment products.

For the new investor, it's important to remember that there are lots of experts out there glad to charge a commission or percentage of the investment. However, if you have the motivation to invest regularly on your own you can avoid paying these commissions and additional fees through no-load mutual funds. I highly recommend talking with one of your unit financial specialists, or contacting the Airman and Family Readiness Center, if you are unfamiliar with or have questions about these types of investment products