How to Build Wealth When You’re Not a Home Owner
Alecia D. Blair, Military Saves Communications Project Manager, AFC® Candidate, FINRA Foundation Fellow
If service life, with frequent PCS moves, has you steering clear of the longer-term commitments and costs of purchasing a home, doing so doesn’t mean you have to be sidelined from building wealth. You can build wealth in other ways that give you the financial flexibility to go where the military moves you. Here are some wealth-building tips for your rucksack.
1. Understand Your Financial Health
Consider yourself a small business when it comes to understanding your financial state. Do you know your net worth? Do you know how much income and expenses you have every month? Completing personal net worth and cash flow statements are great ways to get a snapshot of your overall financial health.
2. Build an Emergency Fund, Not Debt
One of the best ways to help build wealth is to not become over extended with debt.
Instead of relying on credit cards to make everyday purchases, live by a set spending plan, and build an emergency fund that covers three to six months of your household expenses. Use this fund when an emergency occurs (and later replenish it) instead of taking out your credit card and potentially racking up interest charges. In other words, borrow from yourself.
Additionally, the handy debt-to-income ratio can help you determine if you’re too much in debt or doing just fine. The basic liquidity ratio will help you figure out if you have enough liquid cash for a sufficient emergency fund.
3. Lower Expenses to Save More
Find joy in a simpler life. Now, that doesn’t mean you have to forego indulgences, but it does mean you should prioritize, plan and save for them. Doing this will help you search for creative ways to reduce variable and fixed expenses, freeing up more money to save and invest.
After you’ve found more money to save, make sure it’s with a banking institution that will give you the right tool with the best interest rate possible. Check out BrankRate.com for comparison rates on CDs, Money Market Accounts, traditional checking/savings account, etc. Remember, every little bit helps! Oh, and remove the work from saving by saving automatically.
4. TSP & Other Investment Tools
While many Americans equate the American Dream with owning a home, there are other investment tools to use to build wealth while you plan for that future goal.
For starters, tap out your Thift Savings Plan (TSP) potential. In other words, save as much as you can each paycheck (up to $18,000 a year). The TSP offers great tax benefits, and you can take it with you whether you retire after 20 years or leave active service after four.
Consider investing in stocks, bonds or mutual funds to further diversify your investment portfolio. Visit Money & Mobility by SaveandInvest.org and USAA Educational Foundation’s site on Investing. Learn more about these tools and decipher your investment risk tolerance and overall philosophy.
Invest regularly and, yes, automatically, to take advantage of dollar-cost averaging, which allows you to buy more shares when the price is lower. Investing as early as you can means you can enjoy the miracle of compound interest!
5. Invest In Your Earning Power, #MilSpouses, too!
Furthering your own education is investing in your earning potential, perhaps the greatest wealth builder of all. So, take advantage of tuition assistance and your earned education benefits (GI Bill).
These benefits can, in some cases, be transferred to a dependent, including spouses, who need to keep their education and career skills sharp given the employment challenges that come with military life.
You can build wealth as a military servicemember or family. It’s important to set a goal, make a plan and save automatically to overcome the challenges of military life while on the adventure.
Forbes: Ways to Build Wealth Fast
Military.com: Dollar Cost Averaging
- Written by Alecia Blair
- Category: Blog
- Published: 24 May 2016