Guest post Wednesday: Financial independence on an E-5 paycheck
This guest post is brought to you by a military family who’s achieving financial independence on an enlisted salary!
I just wanted to let you know that I greatly appreciate your website and books as they have helped my family tremendously in working toward a financially independent post-military lifestyle. I’m currently active duty enlisted (E-5) Air Force and I plan on retiring after 20 years of service. I would like to share with your audience some tips that I, my stay-at-home spouse, and two small children (ages 2 and 3) use in our quest to become financially independent.
First and foremost, I think the biggest thing that has helped us work together successfully toward financial independence is communication. We constantly sit down, talk, plan, and re-plan our goals as things change. We use a spreadsheet budget that we change monthly as different months bring different cost issues. For example, we may leave more float money in the budget during the winter holiday seasons than in the quiet early spring months where not much is going on spending wise. As we go through each new phase of life, we have to come up with new strategies to meet our goals as new challenges arise. With that being said, we’ve both agreed that the constant we will not budge on during any life phase is that we are both content to live the simple life and stay the course with our savings and investing plan no matter who’s President or even if the economy is in a down market. Moreover, long-term financial independence is more important to us than being here-and-now conspicuous consumers. We’re generous and frugal with our resources but we’re not misers. We constantly try to find the balance between being too cheap and too wasteful as either extreme is unhealthy. So, here is a list of things we do to live a simple life.
I’ve been in the Air Force for eight years and have been married with children while being stationed at this large base for four of them. My spouse served four years in the Air Force but separated from the service after we got married. That is a big deal as I will explain later on. We arrived here in 2008 on the cusp of our area’s oil boom. We were fortunate enough to buy a 3-bedroom, 1-bathroom single family house for $125,000 using my VA loan. The monthly mortgage payment was $972 with everything rolled into it. From the beginning, we were paying at least $100 toward principal every month using an automatic allotment.
Sadly, in 2011, a historical flood ravaged the area and got our house pretty good. From the basement to about four feet on the main floor was flooded. The bad part about this is that we didn’t have flood insurance. Only about 10% of the community had it as well. We were told when we bought the house that we didn’t need it as we were in an extremely low-risk flood zone. Rookie homeowner lesson learned. We will always buy flood and earthquake insurance even if we’re in a low-risk area. Thank goodness, we were able to research and maximize every opportunity that was available to us. We lived on base during the nine months it took to get the flood house back in livable conditions.
Since we lived on base, we lost our housing allowance but still had to pay the mortgage. We were still able to swing it as well as invest because we had no debt aside from the mortgage. So, we shut off all flood house utilities and were still able to max out my and my stay-at-home wife’s spousal Roth IRA. We both invest through Vanguard and both have the Target Retirement 2045 fund. Additionally, we were still able to not only pay the mortgage but continue to pay the extra $100 toward principal every month. We also saved additional money on gas because we didn’t have to drive as far to work.
We moved back in the house back in April 2012 and recently refinanced from a 5.875% rate to a 3.75% rate which lowers our monthly mortgage payment with everything rolled into it from $972 to $713 a month. The oil boom has driven up housing costs in our area so this year the military raised the E-5 with dependent housing allowance rate from $1056 to $1701 a month. So since our mortgage is so low we use the difference of $988 to max out my and wife’s Roth IRA (an $833 a month allotment) and pay down the principal from the leftovers and a little bit from base pay. So our base pay is mainly used for bills and fun.
We have a 3-6 month liquid emergency fund in a money market account. A financial advisor once told me that we only need a few thousand dollars in an emergency fund since we have stability in the military. I disagreed with him and am glad I did. The emergency fund helped us tremendously to get back into our flood house relatively quickly. We have no debt except our mortgage. We now have flood and earthquake insurance. We have our home insurance deductible to the highest limit which saves us hundreds of dollars a year. Both of our vehicles are owned outright. We have the auto insurance deductibles set to the highest limit which saves us money. All of our insurance needs are carried by USAA. We use two old school flip cell phones. No bells and whistles. No texting/Internet. We use the military discount. It costs us about $75-80 a month combined for two of them.
We don’t have cable or satellite TV. We use Netflix live streaming with two DVDs. That costs about $21 a month. We also check out DVDs for free from the base and local library. We watch our utility usage. We turn lights off when not in use and my spouse dries our clothes outside on the clothesline during nice weather months which saves us money on dryer usage. She’s at home so we don’t have to pay for daycare. She makes our family breakfast, lunch, and dinner on most days which cuts down on eating out costs. She makes toothpaste, deodorant, laundry detergent from scratch, and grows her own vegetables. If you’re motivated to go to that level, there’s a ton of free resources online and it saves you so much more on price per unit than you would buy at the commissary. She cuts my hair. We bought a pair of good quality clippers and made our money back on them within the first month.
We buy our children’s clothes from the thrift store, get free hand-me-downs from friends, and rarely buy them anything new as they usually soil it, break it or at least still learning how not to break them. We take them to the library to read books for free instead of buying them books. We use Freecycle in our area whenever we‘re on the prowl for house stuff like desks and odds and ends furniture.
Our goal is to continue to max our Vanguard Target Date Retirement 2045 Roth IRAs out until we’re 60, own our house outright by retirement, and live off the pension. And since my wife was active duty, her goal is to use her post 9/11 GI Bill and go back to college for a masters in speech-language pathology when the kids are school age. In the meantime, because of all the previously mentioned little things we do (that add up), we are still able to afford to go on across the country vacations outright in cash, go to theater/sporting events/concerts, buy good quality appliances for our house where it matters, buy brand name clothes for me and my wife, go out to eat at nice restaurants, etc.
We also have taken advantage of the educational opportunities that the Air Force has to offer. I don’t know how it works in other services, but we can earn a regionally accredited associates degree in our career field specialty. I took a few additional classes and earned an associates from the Community College of the Air Force. There’s also a program called the Air University to Associate Bachelor Cooperative (AU-ABC) program which has agreements with various regionally accredited schools. In other words, if I have my associates degree and the cooperating university is a part of the program I only have to take 60 credit hours to earn my bachelor’s degree. I took part in that program and earned a regionally accredited BA Sociology in 15 months. I’m now working towards a regionally accredited master’s degree in organizational management. My spouse attained her bachelor’s degree as well without using her post 9/11 GI Bill. When she was active duty she earned her associates degree from the Community College of the Air Force. When she became a civilian military spouse in 2008, she then qualified for the MyCAA program. That is an educational grant program that gives military spouses $4,000 towards certain bachelor’s degrees. That’s how it worked back in 2008/2009, so it may have changed since then. But because of her associates degree and college credits earned prior to joining the Air Force, she was able to earn a bachelor’s degree within 12 months using the MyCAA money without tapping her post 9/11 GI Bill.
I hope this information is helpful to your readers. Yes, we are in a unique situation living in an area with an oil boom, but we would still live like this no matter where we were stationed. The only thing we would do differently is live on base housing or rent if we got stationed anywhere else. Taking on a house is a tremendous responsibility.
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