It is possible to retire a military millionaire?
I did it 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…
A lot of that stuff is shady.
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!
Execute these proven seven steps to become a military millionaire before retirement.
1. Cut your expenses
You have to learn to live frugally. For a lot of people, this is a change in mindset.
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.
O no, 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.
They buy Ferraris and have helicopters!
Here’s the two choices you have.
- Look rich now, be poor later
- Look poor now, be rich later (hint: this is what I’m doing)
For help with cutting expenses, read 9 Debt Payoff Hacks that Work and 3 that Don’t
2. Increase your income
Next, find ways to increase your income. Start a home business,
send ask your spouse to work, take on a part-time job (side hustle) 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.
Step one was to cut your expenses. That’s helpful, but how much you can cut your expenses has a limit. You can only cut them so much, and then life starts to get really tough. The max you can cut them is to zero, but that’s totally unreasonable.
My point is, cutting expenses has a limit, but how much you make does not. You need to grow the gap between what you spend and what you make. Cut expenses AND increase income. This is where the magic happens.
3. Eliminate debt
I’m pretty logical about this. I pay off debt with the largest interest rate first.
Some people prefer to pay off the smallest amounts of debt first, that way they feel psychologically they are getting somewhere faster.
Just get out of debt!
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.
The concept doesn’t take a genius, though. Stop spending and start paying off your debt.
After getting rid of all of your credit card debt, you need to shift your focus to car debt, and eventually knock out that dreaded student debt.
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 a military millionaire needs.
Make sure you are paying low-fees for your index funds. I recommend Vanguard, Fidelity, and Schwab for this.
For a more in depth look at picking index funds and the fees involved, read The 10 Cheapest Index Funds to Supercharge your Portfolio
5. Optional – Pay off your primary residence
IF you buy a house (I only buy a house if it will make money as a rental), consider paying off your primary residence before retirement.
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.
While this isn’t mandatory, having your primary residence paid off before your military retirement can have a huge psychological benefit.
No big mortgage payment to worry about!
I will admit, using mortgages responsibly to invest in real estate is a solid strategy, and over the long term wealth can be built faster this way, but there is amazing peace of mind in having a mortgage paid off.
It’s also a good idea to lower your debt to income ratio later in life, especially closer to retirement.
More info on this including the pros and cons of paying off early can be read about in 5 Surefire Ways to Payoff your Mortgage Fast
6. Traditional investing
You fund a traditional brokerage account. I prefer to keep my investments simple. Same S&P 500 index fund. Nothing else for me. If you want more options with how you invest, here is a great resource. This article is not mine.
These six steps are enough to be a military millionaire. Paying off properties is optional, but very cool. 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 didn’t buy it because it would not have made money as a rental property.
I then bought real estate in a different part of the same city that would work financially as a rental. We didn’t live in this property, it was purely an investment property.
So at this point I’m renting the house I’m living in and I bought a house that is an investment property all in the same city.
The rental numbers looked great, so I kept buying rental properties in that same location there after I PCSed. I haven’t bought anywhere else yet.
My rental properties were purchased for prices ranging from $30k-$60k each. I paid cash.
If you use mortgages, make sure you have at least 20% down. Avoid PMI and avoid being highly leveraged. Do not fall for that no-money-down crap that certain gurus will try to sell you. It could land you in trouble!
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)
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 be a military millionaire.
Rich on Money
Do you agree with my steps? How about my approach to mortgages. Email or comment with your thoughts.
Read my page on The Complete Guide to Real Estate Investing
My TSP Page which is a comprehensive guide with all the new rules on TSP withdrawals as well as my spin on things.