It is possible to retire from the military a millionaire. I know a few people who have done it.
I hit the mark before retirement. No rich parents, no help, wife didn’t work.
Can the average military member go from being in debt to military millionaire?
We all see websites and books from people who were deep in debt and somehow quickly made millions.
Maybe we should read their books or infomercials and try their methods…
I believe it is hard to duplicate their success.
These gurus get rich off people looking for shortcuts. Most that try the guru route fail miserably.
It often involves going into lots of debt or paying a lot upfront for a product or a course.
It also requires no common sense
So how can you get out of debt and make a million or so when the average military member has a low-income and some debt.
Maybe a lot of debt!
Try these seven steps to making a million before retirement.
1. Cut your expenses
You have to learn to live frugally. This doesn’t happen overnight, but it’s crucial to your success. Ditch the big house, new cars, iPhones, Harleys, boats, timeshares, expensive vacations and hobbies, and exotic travel.
I’m losing some of you already! If you need those things above, I suggest trying a no-money-down infomercial course. They won’t tell you to live frugally.
Here’s the two choices you have.
- Look rich now, be poor later
- Look poor now, be rich later
2. Increase income
Next, find ways to increase your income. Start a home business,
send ask your spouse to work, take on a part-time job if possible. Consider a different career if that will work for your situation. My side hustle was flipping houses. That’s a story for another day.
3. Eliminate debt
The most important step of all.
I’m pretty logical about this. I pay off debt largest interest rate first.
Everybody has their strengths and weaknesses. Dave Ramsey is great on debt.
That’s his strength.
His advice from the book “The Total Money Makeover” is solid.
If you want a in depth guide to getting out of debt, read it.
4. Maximize retirement accounts
You fully fund IRAs and TSPs/401ks to take advantage of legal tax breaks for retirement.
How to invest? This is easy. Invest in a low-fee index fund like the S&P 500. Nothing else. This is all you need.
5. Pay off mortgages
IF you buy a house (you only buy a house if it will make money as a rental), you pay off your mortgage quickly.
Now I’m losing the rest of you.
This is controversial and most people would deem it impossible, but I did it on a single military income, and it was key to my success.
6. Traditional investing
You fund a traditional brokerage account. Same S&P 500 index fund. Nothing else.
These six steps are enough to make that million. If your spouse works, shoot for a million each.
The seventh step is a bonus step. I’m a BIG believer in real estate. The passive income from it will continue to flow to me for years to come with almost no work on my part.
Now you are out of debt, properly invested, and have enough money for at least a 20% downpayment on something.
7. Buy rental properties
This needs to be done wisely. You don’t buy a house at every assignment. Buying a house when you are stationed in Hawaii or Monterey, CA will probably not make a good rental.
You do the math and make sure the house will make money as a rental property.
In one city, I rented a house that would not have done well as an investment property, but my wife liked it. I then bought real estate in a different part of the same city that would work financially as a rental.
The rental numbers looked great, so I kept buying rental properties there after I PCSed. I haven’t bought anywhere else yet.
I might, if the numbers work!
Avoid mortgages whenever possible. My rental properties were purchased for prices ranging from $30k-$60k each. I paid cash.
I recommend not have more than one mortgage at a time. If you use a mortgage, pay it off before getting a second mortgage for your next rental property.
Rule of thumb: If you or your spouse want to live in a big, new house, don’t buy it. Rent it. It’s almost impossible for these to make good rentals. (Living in a big new house also contradicts the first rule of cut your expenses)
THE MAGIC OF LEVERAGE
I know you all think I’m crazy. If I use leverage, I could have five properties for every one I paid cash for.
That’s true, but benefiting from leverage is more rare than you think, and luck has to go your way.
If house values go down or stay stagnant, you are worse off being highly leveraged. If value dives enough, you might even lose the homes and your credit.
If house values raise slowly, the merit is still debatable. Interest and other fees eat into profits. High interest from hard money loans really eats into the bottom line.
In the rare circumstance that house prices raise significantly, your highly leveraged portfolio of homes makes you rich.
This is the magic of leverage.
It’s also rare and impossible to predict. It happens in a random way. If you think you can predict it, I bet you also think you would be a good day trader.
Go for it!
I know many of you want to buy a house while you are still in debt. You are eager to make money in real estate NOW. This is how you will pay off that debt and retire wealthy.
In most cases, it won’t work.
I highly recommend the slow and conservative approach of paying off your debt first.
Slow and steady wins the race.
Yeah, I know it’s boring.
But it’s the surest way I know to a cool mil.
Rich on Money
Do you agree with my steps? How about my approach to mortgages. Email or comment with your thoughts.
Read my post on calculating what you’ll make on a rental property.