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Easy financial question. Getting a bonus but sure what to do

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uscgfsu
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Easy financial question. Getting a bonus but sure what to do  Reply with quote  

I am reenlisting in the military and will receive a 26,000 bonus as an incentive. After taxes I will only get 10,000 up front and 2,000 at the end of EVERY year for the next 5 years.

I am not sure what to do with this money and also welcome any other financial advice.
I am 26 years old and probably 18-20 years away from retirement with a pension. I do not own a Home and probably won�t due to transferring every 3-4 years.


-Have 1,500 in my TSP (401K) and contribute 250 a month to it

-Have 1,000 in savings

-Owe 24,000 @ 0% on my vehicle

-Owe 10,000 @ 3.9% on Wife�s vehicle

-Owe 7,000 in government student loans and have not locked the interest rate

I do not have any credit card debt

I am doing well financially but still don�t have a lot of extra cash because my Wife attends school full time.
Post Thu Dec 07, 2006 12:12 am
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rockhound
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You might consider adding something to the $1,000 in cash savings so that you have an emergency fund to fall back on in case something unexpected comes up. Because the military is a secure job prospect, you may not need the commonly recommended six months worth of living expenses, but consider upping the savings to at least $5,000 so you have an emergency fund.

What is your TSP contribution? Are you putting in enough to get the matching 5%? You might take the remaining up-front $6,000 and make a contribution to your TSP (I think you can add a lump sum like that, but someone correct me if I'm wrong...), since at age 26, your TSP retirement plan is severely under-funded with only $1,500.

You didn't ask for advice on this topic, but my feeling is that you may have more "car debt" than you can afford. I would suggest that a large portion of the money being spent on car payments should have been going to retirement or some other form of investment. You can still rectify this by keeping the cars long after they are paid for, and increasing your TSP contribution by what used to be spent on a car payment. I don't like the car debt, but if you're making the payments okay, then right now it's more important to use extra money to bolster your savings and TSP.

If you are wondering if you should take this up-front $10,000 and pay off the wife's car or pay off the student loan, I would say that money will do you more good by going into your retirement fund and savings. The $2,000/year that you get for the next five years could either be used to reduce the car payments, or you could add that money to an IRA. The IRA would be a good idea because you have virtually no retirement, and have a lot of catching up to do. If you use it to pay on the cars, keep them going forever, or you will have wasted that money. The idea is to delay the next vehicle purchase as long as possible, and use the money you would have spent on a car payment to get your retirement fund into respectable shape. For some comparison, look for a goal of having several hundred thousand dollars in your retirement fund when you need it (other people are going to say much more, but I'm trying to be realistic assuming what an enlisted man makes); in contrast, an amount like $50,000 in a mature retirement fund when you go to cash it out is considered like having nothing at all.

Not to beat this retirement/savings thing to death, but consider this: say you retire at age 46, which is awfully young. That is one of the attractive things about the military--you join at age 18, put in 20 years, and are young enoung to enjoy your retirement. But what kind of retirement will it be when you're 46, have no savings, virtually no retirement fund, and won't be eligible for social security for another nearly 30 years? After 20 years in the military, you'll be working at a convenience store or as an OTR truck driver to pick up extra cash to make ends meet, and that is probably not what you envisioned.

Congratulations on not having credit card debt! That puts you ahead of most people, since credit card debt would negate any windfall that might have come your way.
Post Thu Dec 07, 2006 4:28 am
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rockhound
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quote:
Originally posted by muneepenee

--------------------------
tu rokhound: yu kan get munee outta SS at aej=62
62-46=16 yeers, not 30.
Most "retired" military get a sivee job like wot em did wen in military
the big reinlist bonus impli him werk in feeld with hi demand.


That may be true now, but they keep on pushing that age farther and farther back. I think it's safer to assume that when he is ready to retire, the SS age will be more like 70. Besides, whether you have nothing for 16 years or 30 years, it makes the same point.
Post Thu Dec 07, 2006 9:48 pm
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oldguy
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Car rant. Be careful with cthe ars. They are going to eat your lunch - and it is a common problem in the military. Folks don't have house payments so they buy late-model cars. The trouble is, houses appreciate and cars are the worst depreciating assets that we have. Your cars are losing about $8000/yr right now whether you drive them or not - that's about $10,000/yr of your salary before taxes.

But I wouldn't prepay any of those loans, they are all keepers, you're not paying much for the use of the bank's money, keep using it. If you can commit your bonus money long-term, Roth IRAs would be the best thing for your far future - $4000/yr in a Roth should grow to about $1M when you are age 56. You have until April 15, 07 to make your 2006 investment, and you can make your 2007 investment starting in Jan - so in Jan 07 you could invest $8000.
Post Fri Dec 08, 2006 12:40 am
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JCook
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First of all we appreciate your service.

Here is what I would recommend. It is the tough but it will get you out of debt and put you on a road to gain control of your financial life with no risk.

Keep the $1,000 as your emergency savings account for now.

Pay off the $7,000 student loan.

Sell the $24,000 vehicle and use the $3,000 to buy a $3,000 vehicle.

I would keep the $1500 in your TSP but I would stop contributing for now until you pay off your wifes vehicle unless you can sell it and buy another one with the profit off of that vehicle.

Once you are out of debt you can build up your emergency savings account to $10000 or 6 months of expenses, start investing for retirement again, start saving for future vehicle purchases and other major purchases and pay for your wifes schooling. I would imagine your two car payments and the loan are a substantial amount of money each month. You will be in good shape once you get rid of those payments and you will be in control of your financial future.

I know this is a bitter pill for a while but you can clean this up and start getting on the right side of interest where you are making it instead of paying it.
Post Wed Dec 13, 2006 3:31 am
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