The debt snowball method has been around for a while. It was popularized by personal finance guru Dave Ramsey.
The premise of the debt snowball is that if you have more than one instance of consumer debt (car loan, credit card etc.) you should pay off the smallest balance first, not the one with the highest interest rate. The idea here is that a small victory on a small balance will give you further incentive to keep working on paying off the next bigger debt. Additionally, you can apply the monthly payment that was going to the first small balance toward the next debt with its requisite payment allowing you to crush each debt with larger and larger monthly payment amounts.
Vertex42.com has a great Excel based snowball calculator that can show you how fast and how much interest it will cost to pay off all your debts. You can select the Snowball method as described above or the “blizzard” method which pays off the highest interest loans first, or a custom method you define. This is a handy tool for planning your strategy of escaping debt.
Vertex 42 has a lot of Excel templates and instruction if you are new to Excel or want to brush up on your skills/knowledge.
by Rich with No Comments
The main reason? Out of sight out of mind. He doesn’t think of it and consequently has a balance in the “bank” of over $150 in a few months of savings (some birthday money thrown in there too).
This is a perfect lesson on how we ought to save. Set up the money to come out of your paycheck before you even see it, or at least have it transferred before you can spend it. This is the old “Pay yourself first’ mantra. When you do this, you are much less likely to miss the money you never had. If you try to wait until the end of the month and save what’s left, you’ll end up with lint from your pockets.
I use a similar strategy with pay raises. As active duty military, we usually get a small percentage pay raise each Jan 1st. I just bump up my TSP amount to coincide and I never see/miss the pay raise. Same thing on even year anniversaries of my active duty service, I get a small bump in pay, just save it ahead of time.
What strategies do you use to “pay yourself first”? Tell me in the comments.by Rich with 1 Comment
News Flash! Your military retired pay stops when you die!
The Survivor Benefit Plan (SBP) is a form of life insurance for your military retired pay that provides a percent of your retired pay to your spouse or other designee after you die.
In a nutshell:
You pay premiums starting at retirement for up 30 years out of your pension to cover this insurance. The premiums are pre-tax and lower your tax bill. Additionally, the government subsidizes the payments, so it is even cheaper than at first glance. For spouses it provides from a minimum of $300 a month up to 55% of the member’s pension for life. Your spouse’s signature is required to not select SBP.
There is a different formula used for percentage if you entered military service before March 1st, 1990.
Post-1990 example: A service member elects for full coverage of his $2200 a month pension payment. This will cost $143 a month and if the service member passes away, his spouse will receive 55% of $2200 or $1200 per month.
Rules: Sign up upon retirement or within 1 year of retirement.
For the Spouse option: If your spouse remarries before 55, SBP stops, after 55 it does not. If your spouse dies before you, your SBP payments stop.
Former spouse rules are similar to spouse except you have to provide a letter from you and your spouse to DFAS explaining the reason for the election (divorce agreement, voluntary etc.).
Children can be covered provided they are under 18 or until their 22nd birthday if they are enrolled full-time in college, the benefit only goes to the children if the spouse is no longer eligible (deceased or remarried if under 55). The children’s plan is very inexpensive. The premium is based on the service member’s age and the youngest child’s age at the time of selection of SBP.
Is SBP worth it? This depends on your financial situation. May not be necessary if your spouse has a successful career, or you have significant investments/insurance to cover expenses after you pass. If the money from your pension is an afterthought you may not need it. Your SBP payments are pre-tax and the government discounts the cost compared to a privately purchased annuity.
Can I sign up after I retire? For one year with a couple exceptions such as getting married.
What if I change my mind? You can sign up as stated above, you can exit between the 2nd and 3rd year anniversary of receiving your first pension payment. No refunds on previous premiums paid.
What if I remarry? You can sign your new spouse up.
What about Exceptional Family Members? If your child is permanently disabled, he/she can get SBP for his/her entire life! This can be a double edged sword as their income from SBP may make them ineligible for services such as Medicaid and Supplemental Security Income (SSI) benefit. You may want to consult with a special needs trust qualified attorney to discuss which options make the most sense in your family situation.
There are a couple other options for SBP for business owners with partners and such that I won’t cover here. This article is intended to be a quick intro to SBP, not an exhaustive overview.
Official Defense Website on SBP: http://militarypay.defense.gov/survivor/sbp/index.html
Military.com discussion: http://www.military.com/benefits/survivor-benefits/sbp-child-coverage-cost-and-benefits.html
Good article on special needs/exceptional family member cases:
Disclaimer: I am not an expert on SBP, special needs trusts, or much of anything.
by Rich with No Comments
The following post is not endorsed by USAA, I don’t work for USAA and don’t represent them. I’m just a very satisfied customer.
I’ve been a member of USAA since about 1987. I have my auto and renter’s insurance through them, my non-TSP investments through them and I do the vast majority of my banking through them.
USAA – United Services Automobile Association, was founded in 1922 by a group of Army officers who were having trouble with insurance and wanted a better answer. USAA used to be only for military officers, but recently has opened up membership to all members of the military, active, reserve, retired (basically anyone who has ever served) and their families.
I believe the main reason USAA is such a popular company, especially with the military, is their world-renown customer service. I have never spoken to a bad customer service rep at USAA. They are always supremely professional, knowledgeable about their products, and are able to quickly accomplish my tasks.
Customer service is important, but the main reason I stay with USAA is their products and pricing are unparalleled. In fact, on multiple occasions when I’ve been asked by other car insurance companies who I use, when I tell them USAA, they quickly let me know they can’t compete. That is saying something.
If you are eligible for USAA, you should really have a membership. We moved to USAA for our banking a few years ago and were a little leary about not having a local branch to visit. With USAA’s refunds on ATM fees, smartphone apps for depositing checks and powerful web services for any other banking needs, we haven’t missed a local branch.
USAA recently re-tooled their website and now offers Mint.com like tracking ability for your accounts. You can fill in categories for your spending and USAA will help you figure out where your money is going. Not as powerful as say a YNAB solution, but handy to keep track of your budget.
Who do you use for banking/insurance/investments?by Rich with 2 Comments
When he heard I was considering semi-retirement after my Navy retirement, a good friend and mentor told me I really needed to think about quality of life. He is absolutely right of course, no one wants a bad quality of life. The challenge of course is defining the term. Quality of Life means different things to different people.
What does it mean to you? Is it family? Wealth? Health? A cool car? Security? Vacations? Each person has to define QOL for themselves. At other times in my life, QOL meant a job I enjoyed, a healthy happy family and enough money to live “the good life”.Now as I reach the end of my Navy career, the thing I value the most is time.
Time is our most precious resource, you can’t buy any more of it, you have to make the most of what you have. In my case, I am willing to slightly decrease some creature comforts such as a new car every few years and a huge McMansion of a house in favor of more time with my family and more time to pursue hobbies that interest me.
Do you look forward to the weekend? I know I do. It represents a chance to slow down and relax, stop thinking about work and enjoy some time off. My new definition of QOL is having a weekend every day. That’s what I want.
So that is my current focus. Decrease our current out of pocket expenses, pay off debt to allow us to start saving seriously for a big down-payment on a retirement home.
How do you define Quality of Life?by Rich with 2 Comments
About a year and a half ago, I started shaving with a double edge safety razor. I have several vintage razors, most of which I bought on ebay for $10-20. I buy double edge blades online at pennies per blade and each blade lasts me about a week. Compare this to a current Gillette 5 bladed razor at over $3 a piece and you can see you can save some money over time. I shave every weekday (the Navy is fairly adamant about that) and usually skip it on the weekends.
One of my favorite razors is the Gillette “Fat Boy” produced in the late 50s through the early 60s. It is adjustable, changing the angle and how much blade can reach your skin.
I have a couple favorite blades, Feathers which are made in Japan and Gillette Black Platinum, which are made in India. Based on discussions on several shaving sites (www.badgerandblade.com is my favorite) different folks have different favorite blades so YMMV (Your Mileage May Vary).
I find that I enjoy shaving after years of it being a chore. Now I enjoy the different shave soaps, no shave goop for me, soaps and a nice horsehair shaving brush (other options are badger hair and boar). It is a nice experience I enjoy every time I shave. My favorite soaps are made by Mama Bears.
One danger of DE shaving is what some in the hobby refer to as AD or Acquisition Disorder where you end up buying more and more razors, blade, soaps, brushes and other accouterments. I will admit, I suffered from a mild case of AD at first, but now that I have discovered which razors I like, as well as blades and soap, I’m happy with what I have and only buy soaps when I need a replacement.
Now, the reason DE is called a Safety razor is that it replaced a straight razor. I will admit, I haven’t tried straights yet, but many people swear by them.
Any other DE shavers out there? What are your favorite blades/razors/soaps?
Let me know in the comments.
by Rich with 1 Comment
An average healthy meal (salad) at my work is about $10. I can bring my own for less than $3. So $7 a day for 4 days a week is $119 at 6.5% interest (reasonable investment return) = $20,267.53 at the end of 10 years. Which would you rather have, $20 grand in the bank or memories of daily food purchases at work for 10 years?
Of course if you regularly buy breakfast at work and eat dinner out a couple times a week, the money can add up even faster. This isn’t to say that you shouldn’t be able to treat yourself to a nice meal, but if you do it every day, is it really that special?
Making my lunch takes only a couple minutes in the morning, even less if my leftovers have survived the teenage pillaging of my refrigerator. Sometimes it is a salad, sometimes a can of soup and a couple pieces of bread.
My goal is that lots of little life changes and a few big ones will allow me to save more to bump up that retirement date.
by Rich with No Comments
Based on recommendations from MMM, I’ve recently bought myself a road bike and I’ve been slowly working my way up to riding more. This week, I rode my bike to work and back two times (full disclosure, I drive my car 4 miles to the Mount Vernon Trail and park then bike the remaining 9-10 miles).
The two main benefits of biking to work are saving money on gas/wear and tear on my vehicle and I get a great workout during my commute. This week’s riding works out to 48 miles which I didn’t put on my car.
Above is the bike I bought, an entry level road bike from Nashbar.com. They regularly run sales, so I timed my purchase with a 20% off option and got the bike for less. I’ve since changed out the pedals to clip-in style and the tires to Continental Gatorskins (kevlar lined to minimize flats) and I’ve added some lights and a handlebar mirror.
I opted for a road bike over a mountain bike since I have a fairly long ride and the trail is well-paved. The road bike affords me greater speed so the ride goes a little quicker than it would on a mountain bike.
Biking to work won’t work for everyone, but especially if you have a biking trail that covers a big chunk of your commute, you can really gain benefit from taking advantage of it. I’m fortunate in that the trail I use runs all the way to the Pentagon where I can park right outside our Athletic Center and grab a quick shower on my way to work.
I use the app Runkeeper on my smart phone to track my time/distance/calories burned. Works great!
So what does this have to do with retirement? Less driving = less money spent and exercise = healthier Rich!
I’d love to hear from you in the comment section about biking and other non-conventional ways you get to work.by Rich with No Comments
I like a sharp looking tattoo. I don’t have one because I haven’t thought of anything I want on my body forever. I’m open to getting one at some point.
This however is a cautionary tattoo tale.
Years ago there was a Boatswain’s (pronounced Bosun’s) Mate on my ship with an interesting tattoo on the back of his neck above his collar. Written in Olde English script was the phrase “Trust No Bitches”. I never had the chance to ask him what sequence of events led to his epiphany.
As luck would have it, this young man’s next set of orders was to a Submarine tender, a Navy ship which at the time was crewed with a high percentage of females as it is classified as a non-combat ship and combat ship roles for females were still being worked out. (I was on an all male crewed ship at the time).
I always wished I could have been a fly on the wall bulkhead when he checked in with his new female Chief/Division Officer/Department Head/XO/CO on his new ship. I’m picturing a frosty reception.by Rich with No Comments
Should you view your military pension or any other government guaranteed pension like Social Security like a large investment in bonds? The definitive answer is…it depends.
Some folks make the case that since your pension is guaranteed by the government, it is very similar to buying a number of Treasury Bills and that you can adjust your portfolio mix between stocks and bonds to account for this large cache of bonds.
Others like Ric Edelmen say that since you can’t buy or sell them it doesn’t count as part of your portfolio, you just subtract your pension from your desired annual income to figure out what you properly diversified portfolio amount should be to retire.
Nords takes the view that your pension can satisfy your bond requirement if you keep 2 years of expenses out of the stock market to account for volatility. Others say your time horizon should be much longer– say, 10 years to properly account for stock market volatility.
I think between the natural tendency to reduce spending when your investments are down which we discussed in this post and keeping a certain amount of money in cash to account for the variations in the market, a pensioner can take a more risky position with their investment portfolios than someone living solely off their retirement savings.
In my case, I hope to live off only my pension and any part time work I do for the first 10 or so years after retirement from the Navy. Consequently, I plan to keep my portfolio mix highly weighted towards equities with only small bond positions.by Rich with 3 Comments