Personal Finance for Every Veteran the GMT you wish you had in
bootcamp
Slide 2
Would you rather. Have 3.5 million dollars up front? The value
of the doubling penny after 30 days is: $5,368,709! Start with a
penny and have your balance double every day for one month? or
Slide 3
Where does my approach/advice come from? Although I have a
passion for these topics, the views expressed are not intended to
serve as a forecast, a guarantee of future results, investment
recommendations or an offer to buy or sell securities. This should
not be interpreted as tax advice and please consult your personal
tax advisors if you have any questions. Housekeeping Who I am Who
Im not (Disclaimer)
Slide 4
Topics Behavioral Finance Understanding your current situation
Credit Scores Retirement, the time value of money, & the TSP
Investing 101 Savings accounts & fees Love & Money Home
ownership, mortgages, & refinancing Tax strategy Life insurance
(SGLI & USAA) / Health Insurance Tactical next steps
Slide 5
Why we need an automatic plan People are not rational with
financial decisions (susceptible to framing, prospect theory,
anchoring, choice architecture, & the default option) Study:
the more often you check your portfolio the worse you do Googles
anchoring experiment (3% increase) Save More Tomorrow (12% vs 4%)
Allocation decisions & the default option: Scenario 1: Fund A:
Stocks Fund B: Bonds 54% allocation to stocks Scenario 2: Fund A:
Stocks Fund B: Bonds Stocks 73% allocation to stocks Scenario 3:
Fund A: Bonds Stocks Fund B: Bonds 35% allocation to stocks
Slide 6
Prior to the talk 20 mins - capture your Net Worth (all assets
& debts) Use Mint.com; connect banking & investment
accounts, student/car loansMint.com Include property (homes &
cars) Homes: zillow.com Cars: edmunds.com 10 mins - understand your
credit score Signup for CreditKarmaCreditKarma Pull a free credit
report from annualcreditreport.com; Experian in Jan, TransUnion in
Apr, Equifax in Augannualcreditreport.com 15 mins analyze your
current investments and get free advice: www.FutureAdvisor.com
www.FutureAdvisor.com (optional) 30 mins - create a spending plan
(aka budget) Can be in Mint or even Excel Savings must be a part of
your plan
Slide 7
Understanding your current situation Check Mint often Spend
< make Save xx% of your income Pay yourself first schedule
savings Debts Credit Cards & SSCRA BT offers By 22, have a ROTH
IRA & contribute annually
Slide 8
Credit Scores Credit Scores have 5 components: (300 850 scale,
>720 is good) 1. On Time Payments: 35% (Use Auto-Pay) 2. Credit
Utilization: 30% (use < 10%) 3. Length of history: 15% (keep old
cards!) 4. Types of credit used: 10% 5. Recent inquiries: 10% (hard
vs soft pulls) Credit Scores affect mortgage rates, auto insurance,
credit card rates, student loans, apartment rentals
Slide 9
Ill worry about retirement later Time Value of Money is HUGE!
Frick & Frack brothers The Rule of 72 $$ saved from 25-35 >
$$ saved 35 on Everyone should have a (ROTH) IRA & TSP! Are you
on-track? ~75% of ending salary per year See handout
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Retirement Accounts IRA 2014 Limit: $5,500 No matching Hold at
any institution Thousands of investment options Only contribute
cash Income limits Different for Roth vs Trad Jan 1 Apr 15 (of
following year) open period TSP 2014 Limit: $17,500 No matching
Limited choices (5+1 funds) Only contribute from payroll No income
limits We have a Roth option Jan 1 Dec 31 open period
Slide 11
Uncle Sam will always* get paid Roth After-tax contributions
(pay tax now) Earnings grow tax-free Roth IRAs have no RMDs Roth
IRA income limit: < $114k Backdoor Roth option Traditional
Pre-tax contributions (get a tax break now) $120k salary,
contribute max amount of $17,500 Taxable income now $102,500 28% x
$17,500 = $4,900 Taxed on the way out Traditional IRAs have RMDs
Really depends on tax bracket now vs. retirement Beliefs on
long-term tax brackets / code / law Solution: have some in each
*combat-zone special circumstances
Slide 12
Investing 101 & active vs. passive Stocks, Mutual Funds,
ETFs, Bonds Write down your financial principles / guidelines
20-25% for fun if you must Active vs. Passive Investing: research
shows ~80-90% of active funds underperform their benchmark 8,000
2,000 500 125 20% most actively traded accounts performed much
worse -men worse than women Past fund performance has very little
predictive power to future performance! In fact, expense ratios are
the best predictor
Slide 13
Expense Ratios (the enemy) Industry average (0.80% 2.50%) Low
cost options (0.06% 0.50%) Get angryits your money! Use the
calculator TSP 0.027%! It is difficult to get a man to understand
something, when his salary depends on his not understanding it.
Upton Sinclair
Slide 14
Asset allocation & rebalancing With proper allocation, you
should reduce risk (volatility) and outperform the S&P 500
Rebalancing: meeting long-term policy target weights Use it as a
disciplined way of buying low and selling high ..shunning the loved
& embracing the unloved. Most people do the opposite. (Swensen)
Example: 1990-2012 portfolio: +0.5% difference in return, -2%
difference in volatility My target allocation:
Slide 15
Precedence of Saving 1. Matching 401(k) or TSP Max it! 2.
Emergency fund (~6-9 months) 3. Pay down debt(s) 4. Roth IRA / Roth
401(k) or TSP 5. Taxable account
Slide 16
Savings accounts & fees USAA: reimbursement of ATM fees
Never pay monthly service fees for savings/checking CapitalOne 360:
doubled-ended bonus emergency fund Direct deposit & USAA ACH
push Wells Fargo, Chase, & BofA offer military accounts
Slide 17
Love & Money Talk about money & spending habits before
you get married Many marriages fail because of finances Prenuptial
agreements Child support & alimony Community property clauses
Having a child? (consider HSA & 529 plan) Discuss changes with
your partner Post 9/11 GI-Bill & transfer
Slide 18
Home ownership & mortgages Up to a $300/month because of
credit score Real estate is a key component Consider NOT holding
your mortgage with the same bank as your investments Typically 20%
down, qualify for a home 3x your annual gross income Closing costs,
points Refinancing Being a landlord can be tough!
Slide 19
Rent Rent : Income < 30% (rule of 36) Impact in high-rent
markets (SF / NYC) Have rental package ready Credit pull Ask for a
copy of credit report Security deposit & interest Zillows
zestimate Remember SSCRA for breaking a lease
Slide 20
Tax strategy Look for ways to reduce your taxes Traditional
TSP/ 401k / IRA Mortgage interest (& property management fees)
Education expenses Consider capital gains (realize gains if you
ever find yourself in the 10 or 15% tax bracket. 0% long term
gains) Donate to charity with appreciated stock Hire a professional
taxes are grey (VITA tax help) Active Duty are tax-lucky!
Slide 21
Life insurance Active Duty get SGLI by default ($400k for
$27/month. Includes 4 months insurance after separation.) Typically
dont need it until you have a family, but some people lock it in
while they are healthy Term vs. Whole Nice way to leave a gift
$500k for $42/month
Slide 22
Other random advice Never go without health insurance! Careful
with your contracts Always look for military discounts Cell phone
bills (15%-20%) Movies, restaurants, museums, parks Natl Parks Pass
Clubs Space A travel Remember: smart investing is not very
exciting, but it is very rewarding!
Slide 23
Tactical next steps Automate your savings (pay yourself first)
Enroll in the TSP via HR / YN Open a ROTH IRA Stick to low-cost
index funds
Slide 24
My favorite personal finance resources Fatwallet Finance Forums
Bogleheads Blogs: Mr. Money Mustache, Oblivious InvestorMr. Money
MustacheOblivious Investor Networth IQ | Investopedia Networth
IQInvestopedia The Military Wallet *Bonus Material* Tax Loss
Harvesting the Credit Card game Combat zone perks
Slide 25
Readings / Books TSP Lifecycle Funds:
https://www.tsp.gov/PDF/formspubs/LFunds.pdf
https://www.tsp.gov/PDF/formspubs/LFunds.pdf Tax Loss Harvesting:
https://www.wealthfront.com/faq https://www.wealthfront.com/faq
http://www.forbes.com/sites/quora/2013/05/01/personal-finance-
for-young-professionals/
http://www.forbes.com/sites/quora/2013/05/01/personal-finance-
for-young-professionals/
http://www.irs.gov/Retirement-Plans/Plan-Participant,-
Employee/Amount-of-Roth-IRA-Contributions-That-You-Can-
Make-for-2014
http://www.irs.gov/Retirement-Plans/Plan-Participant,-
Employee/Amount-of-Roth-IRA-Contributions-That-You-Can-
Make-for-2014 The Missing Link Personal Financial Management
(geared towards college students and young adults) The Missing Link
Random Walk Down Wall Street