Making money and properly managing finances is a topic that is very important to me. And I have seen a lot of fellow service members get hurt as a result of their financial decisions. I suspect we have all heard the following story in some fashion. You’ve been on deployment for nine months. For most of that time, you’re getting paid by the military, but have nowhere to spend your money. After nine months of hard work, you get back Stateside and a lot of people in your unit have pretty big bank accounts. The next day, there is a run on the local banks. And this part of the story I have confirmed with professional retail bankers. Some of those returning service members withdraw all of their money. Within a few days, they are flat broke. All the money they saved up from deployment has been spent and their bank account is once again near zero.
At its base level, money is a representation of your accumulated (but unspent) time. You deploy for nine months and the military compensates you for the expenditure of that time (and the services you provided during that time). When you spend the money, you are acquiring the time of someone else. For example, if you buy a car, you are purchasing the time spent by others to create that car (design, parts acquisition and assembly, etc). When one looks at money as nothing more than a representation of their time, every dollar misspent becomes a waste of your most precious asset, your time.
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Full disclosure, I am not a professional financial advisor. So what I’m about to write next is simply the opinion of a regular person. When I came off of deployment, I took 90 percent of the money in my bank account and locked it away in a certificate of deposit. The other 10 percent was what I used to celebrate and reward myself for the previous months of work overseas. Then I went back to my job in the Navy as if nothing happened and there was no extra money sitting around. As future checks came in, I then resumed my normal savings rate of 10 – 50 percent of each check (depending on bills to pay and other expenses). My rule has always been that for every check that I earned, a minimum of 10 percent had to be put into savings, with a much higher percentage (up to 50 percent) being preferable.
Inevitably the question gets asked – what’s the point of putting this money aside? Especially if some Wall Street shyster comes along and tries to clean it out with “creative investments” (i.e. theft).
The answer is this: there is always a risk that the value of the money you save can go down (even to zero). But remember, the value of the money you spend is zero. The money is gone when you spend it. Some of those expenditures are important, so the money must be spent. But very rarely does the item or service bought with that money maintain its monetary value.
Personally I feel that a legitimate part of good mental health is about making progress in life. Whether it’s gaining promotions in the military, more titles or qualifications, or simply accomplishing goals, the idea of moving forward and not remaining stagnant is an integral part of happiness. It is no different with money. Having nothing in the bank and surviving check-to-check is the ultimate in stagnation. Coming off of deployment and losing an entire fortune in one week of binge spending – this is equivalent to losing the financial value of the last nine months of your life.
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For most people in the United States, the primary source of income is their job (whether serving in the military or in a civilian role), or income from their business (which is akin to a job when you’re involved with running day-to-day operations). Whether someone runs a business or works for an employer, if they have no money in the bank, they very much depend on the income from those activities. Have an overbearing, abusive boss? Well without a large Freedom Fund, you have to tolerate the bad behavior of your boss. On the other hand, what if you had previously saved $40,000.00 and that money is just sitting in a bank certificate of deposit? Well, you suddenly have very little incentive to tolerate an abusive boss because you don’t need the money. You can easily live off of the $40,000.00 Freedom Fund and take your time finding an employment situation that is satisfactory for you.
Building a $40,000.00 Freedom Fund is doable. Looking at the military pay charts, if you take your average E-4, they make about $2,200.00 per month. If they save everything earned during two nine-month deployments, they’ve nearly saved up $40,000.00.
In subsequent articles, I’ll discuss other ways that a large amount of savings can benefit your life. This includes the freedom you achieve when your own savings generates enough passive income where you don’t have to depend on an employer again.