Debt free...now what?

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five2one
Posts: 131
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Debt free...now what?

Post by five2one » Thu Jan 10, 2019 12:06 am

I'm 30 days away (payments are being processed now) from being debt free (house, cars, credit cards, etc.) and I'm military living in govt housing for the foreseeable future (next 2+ yrs) with no utilities. Not going to get into the details of the debt but essentially it accrued over last 6 years and was about 80% of my annual net pay (80% includes cars but not mortgage on a house we just sold).

My initial thought to being debt free was kind of a "now what" along with ensuring we avoid lifestyle creep.
Here is my situation and looking for some advice as I chart my way forward for next 5-7 years and beyond.

Liabilities:
Cars are 2012/2013 and in good mechanical shape with 100k or less.
We still have netflix, hulu, etc. but not much else.
Phones are older smartphones but sufficient.

Career:
I'll be eligible to retire from the military in 2021 as O-5/LTC but plan to stay in until at least 2025 when I'll be 46/47.
We kept investing as we were paying off the debt but not as much as desired as we prioritized debt payoff.

Finance Overview:
I recognize I'll have to eventually buy a house upon military retirement but for now I'm thinking funnel as much as possible into investments.
Not going to get into the full numbers just yet but some quick percentages:
-My current portfolio is 150% of my annual gross pay, wife is stay at home mom to our 3 kids all under 10.
-My living expenses (phones, internet, insurance, groceries, etc.) are less than 25% of my net pay.
-This includes vehicle maintenance budget, kids clothes, eating out budget, etc.
-Savings is non-existant as we used it to pay off debt but I have non-roth investments I can liquidate quickly if needed. Yes, this was risky but the risk was tolerable for reward.
- I have a financial advisor (save me the swan songs) who has been good so far with good returns and helped open my eyes to some things.

Concept for budget:
So my plan is to invest 50% of my net pay in mix of funds and use the remaining 25% to top off savings then set it aside for big trips and the "nice to have" fund.

Long Term Goals:
Post-mil, I'll keep pushing into a 2nd career for another 20-ish years with plan to retire at 65.

Post-Mil Plans:
I have some experience in IT project & program management for DOD programs and understand a lot of the terms, systems, and players but no interest in obtaining the various IT certs if that's what an IT career requires. Otherwise I'm somewhat attracted to Business Dev, Customer Sales/Support, B2B sales, PM, etc. but honestly these are things I'm slowly figuring out with a limited understanding as I remain focused on my day job.

Education:
One major expense on the horizon is a 2nd master's (MBA from KU) (plus possibly PMP, lean 6, etc.) for my post-mil life.
I'm combat arms and figure the MBA plus would help for transition.
My 1st masters is a Masters of Science in Administration from Central Michigan Univ....hey, they at least have a football team.
My undergad is a BA in History from a Senior Military College.
It has helped me personally & professionally but not sure it is sufficient for post-mil professional career.
I have some GI Bill eft that will cover most but not all of it.

So all that said, am I going about this the right way?
We have all the normal life insurance, wills, etc.
What am I missing?
Last edited by five2one on Thu Jan 10, 2019 12:43 am, edited 1 time in total.

JGoneRiding
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Joined: Tue Jul 15, 2014 3:26 pm

Re: Debt free...now what?

Post by JGoneRiding » Thu Jan 10, 2019 12:29 am

Congratulations! Take just a moment and relax in it!

I rec keeping a small journal of thoughts on your personal finance process. Investing and how to do it and where to do it and how much to put in will be a thought process. You are on a good path but it's a marathon

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Watty
Posts: 16879
Joined: Wed Oct 10, 2007 3:55 pm

Re: Debt free...now what?

Post by Watty » Thu Jan 10, 2019 12:43 am

five2one wrote:
Thu Jan 10, 2019 12:06 am
What am I missing?
A couple of suggestions;

1) Have a car fund to save up to pay cash when you eventually need replacement cars.

2) Save up an emergency fund of at least six months expenses.

3) Save for your education costs whatever you decide to do.

4) It was not clear if you have a paid off house or not. Either way you might want to save up a downpayment for your next house. If you do have a paid off house then you could end up getting a great job in some other city and you might want to keep your old house as a rental and buy another house with a mortage to live in.
Last edited by Watty on Thu Jan 10, 2019 7:13 am, edited 2 times in total.

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BL
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Re: Debt free...now what?

Post by BL » Thu Jan 10, 2019 1:27 am

I don't see any mention of TSP savings. If your adviser recommends investing in that to the max, then you received good advice.

I understand that college money can be transferred to your kids now. That could be worth a lot, possibly more than your using it for yourself. If you could get into a contractor systems management job, (or are eligible while on duty), they might send you to DSMC, for example. https://www.dau.mil/locations/dsmc

Roth IRAs for both of you is good. That could be a back-up emergency fund to supplement your regular e-fund, although it is much better to never remove any money until retirement. Agree to also save up for expenses such as car, house down-payment, etc., in low-risk cash or bonds.

You will probably be approached by civilians or ex-military to invest or buy insurance, so beware.

Full SBP is worth a lot to a spouse, and although insurance may sound good, it probably isn't competitive.

Olemiss540
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Joined: Fri Aug 18, 2017 8:46 pm

Re: Debt free...now what?

Post by Olemiss540 » Thu Jan 10, 2019 6:39 am

Thanks for your service!

Can I ask what you mean by "save me the swan songs"?
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

Nissanzx1
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Re: Debt free...now what?

Post by Nissanzx1 » Thu Jan 10, 2019 8:56 am

Lots to do, this is just the beginning of your financial success.

I suggest you use a zero-based budget and allocate every penny according to your budget. This keeps lifestyle creep from happening.

We use separate savings accounts for:
Car Repair/Replacement
Emergency Fund
Hobby Fund
Property Taxes/Home Insurance
Rental Home Fund

In your case, you may want an additional house fund so that you have the down payment (or enough to purchase outright) when you exit the military and buy the family home.

Thank you for your service!

Jack FFR1846
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Re: Debt free...now what?

Post by Jack FFR1846 » Thu Jan 10, 2019 9:05 am

Just to correct one statement....your advisor did not get you good returns...your investments did that. Your advisor simply skimmed a good bit off the top of those returns.
Bogle: Smart Beta is stupid

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corn18
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Re: Debt free...now what?

Post by corn18 » Thu Jan 10, 2019 10:28 am

My experience is specifically related to transitioning from a 20 year military career to the DoD contractor world, so please read this with a jaundice eye.

Networking. While you are in the military, build and maintain a broad network within the military. Stay connected with operators, requirements, policy and acquisition professionals. That rolodex will be worth 100x any MBA you can get. Also, start building a network with contractors big and small. Skills that are highly valued in the DoD contractor world are:

1. Business development: Help us figure out what the customer wants. We win when we bid what the customer wants. Also help us work with the customer to identify what they need and how we can help solve their hard problems. In addition, specific knowledge and experience with how the government works is very valuable. Knowing the people that make decisions is as well.

2. Program/project management: Good PM's that can work closely with the customer are tough to find. If you can get some PM experience under your belt prior to retirement, you will provide great value.

3. Profit / Loss (P&L): how business works. This is where an MBA might help, but reading a balance sheet is not running a business. The number one issue that new military retirees struggle with when they transition to the contractor side is not understanding business. They want to change the world and tell us how we should invest our money. That is helpful and appreciated, but what is more appreciated is understanding IRAD, CAPEX, overhead rates, throughput, etc... and how we need to balance all of this to serve our customers. While the government is our customer, so are our shareholders. Find a buddy in your network that is running a DoD contractor business (not just a BD guy or PM) and talk to them about how it really works and what really matters. Also talk to other P&L folks (including entrepreneurs) about how business really works. If you can talk P&L in an interview, they will hire you on the spot.

4. Technical skills: This isn't about coding or understanding how to lay out a circuit board. This is about systems engineering. Starting with a problem statement and working through the systems engineering process to solve the problem. One of my biggest issues with my engineering team was their inability to think beyond how to tweak what we already have to solve a problem. Put a new knob here or a new feature there and then throw that over the fence for the BD/Sales team to sell. What we really need is someone who can look at the problem without bias towards a specific technology and help solve that problem. This applies to everything from building ships to boots. If you have this skill set, I will hire you tomorrow. And pay you a boatload of money.

5. Leadership: I met great leaders and bad leaders in the military. Same goes for the civilian world. Learn about what makes a great leader. I can't teach it, you can learn it. I was a get 'er done leader in the military. I ran over a lot of good folks getting stuff done. That's how I was successful, and also served me well when I transitioned to a BD role. I knew how to win and that's what I did. After 11 years, I have made the most important transition of my life: I am a servant leader. Instead of walking into a meeting and announcing this is what we are going to do, I ask "How can I help?" This takes patience and skill to manage a business this way, but in the end I work a lot less with an empowered and trusting team. Also, surround yourself with great people. Easy to say, hard to do. I hate micromanaging and find it to be an uncomfortable environment to work in. I hire great people and turn them loose. And be a mentor for people. My greatest pride is when I hear about someone I mentored that is now running a company or large program and kicking butt. That is my legacy.

Hope this helps.

Corn
Last edited by corn18 on Thu Jan 10, 2019 10:40 am, edited 1 time in total.
Don't do something, just stand there!

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StormShadow
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Re: Debt free...now what?

Post by StormShadow » Thu Jan 10, 2019 10:38 am

I'm a big proponent of keeping things simple.
five2one wrote:
Thu Jan 10, 2019 12:06 am
Savings is non-existant
Yeah, work on this.

Build up your emergency fund, TSP to the max, Roth IRA to the max and save/invest anything extra on top of this if you are able.

Sloopik
Posts: 12
Joined: Mon Jan 07, 2019 8:50 pm

Re: Debt free...now what?

Post by Sloopik » Fri Jan 11, 2019 3:31 am

Keep it relatively simple like the last person said.

Emergency Fund! The goal is to stay out of debt as much as humanly possible. Determine what a good fund is for you based on your personal life circumstances.

Max out your retirement plans. And with the excess, save it some other way that will make it be of use to you. Don't let $50k accumulate with it sitting around in a savings account. Figure out ahead of time what you want that doing for you. Acquire property with it. Fund a business venture, something you're willing to risk losing and where it won't affect your net-worth in any harmful way but will allow you to potentially strike on that $1mil idea or simply allow you to acquire financial freedom early on. If you're not an entrepreneur than there's other ways you can use that extra money to work for you.

But the goal is to have a financial buffer as well as a "plan-b" get-rich scheme if your short-term goals fail. I.e. long-term investing. You never want to lose out on the time passing that you will never get back. Time that could've made you rich if you took advantage of it while pursuing shorter-term plans that may have failed.

356Fan
Posts: 6
Joined: Wed Sep 12, 2018 6:37 am

Re: Debt free...now what?

Post by 356Fan » Fri Jan 11, 2019 9:00 am

corn18 wrote:
Thu Jan 10, 2019 10:28 am
My experience is specifically related to transitioning from a 20 year military career to the DoD contractor world, so please read this with a jaundice eye.

Networking. While you are in the military, build and maintain a broad network within the military. Stay connected with operators, requirements, policy and acquisition professionals. That rolodex will be worth 100x any MBA you can get. Also, start building a network with contractors big and small. Skills that are highly valued in the DoD contractor world are:

1. Business development: Help us figure out what the customer wants. We win when we bid what the customer wants. Also help us work with the customer to identify what they need and how we can help solve their hard problems. In addition, specific knowledge and experience with how the government works is very valuable. Knowing the people that make decisions is as well.

2. Program/project management: Good PM's that can work closely with the customer are tough to find. If you can get some PM experience under your belt prior to retirement, you will provide great value.

3. Profit / Loss (P&L): how business works. This is where an MBA might help, but reading a balance sheet is not running a business. The number one issue that new military retirees struggle with when they transition to the contractor side is not understanding business. They want to change the world and tell us how we should invest our money. That is helpful and appreciated, but what is more appreciated is understanding IRAD, CAPEX, overhead rates, throughput, etc... and how we need to balance all of this to serve our customers. While the government is our customer, so are our shareholders. Find a buddy in your network that is running a DoD contractor business (not just a BD guy or PM) and talk to them about how it really works and what really matters. Also talk to other P&L folks (including entrepreneurs) about how business really works. If you can talk P&L in an interview, they will hire you on the spot.

4. Technical skills: This isn't about coding or understanding how to lay out a circuit board. This is about systems engineering. Starting with a problem statement and working through the systems engineering process to solve the problem. One of my biggest issues with my engineering team was their inability to think beyond how to tweak what we already have to solve a problem. Put a new knob here or a new feature there and then throw that over the fence for the BD/Sales team to sell. What we really need is someone who can look at the problem without bias towards a specific technology and help solve that problem. This applies to everything from building ships to boots. If you have this skill set, I will hire you tomorrow. And pay you a boatload of money.

5. Leadership: I met great leaders and bad leaders in the military. Same goes for the civilian world. Learn about what makes a great leader. I can't teach it, you can learn it. I was a get 'er done leader in the military. I ran over a lot of good folks getting stuff done. That's how I was successful, and also served me well when I transitioned to a BD role. I knew how to win and that's what I did. After 11 years, I have made the most important transition of my life: I am a servant leader. Instead of walking into a meeting and announcing this is what we are going to do, I ask "How can I help?" This takes patience and skill to manage a business this way, but in the end I work a lot less with an empowered and trusting team. Also, surround yourself with great people. Easy to say, hard to do. I hate micromanaging and find it to be an uncomfortable environment to work in. I hire great people and turn them loose. And be a mentor for people. My greatest pride is when I hear about someone I mentored that is now running a company or large program and kicking butt. That is my legacy.

Hope this helps.

Corn
+1

Corn nailed it.


Assuming you are looking to work in the same space (e.g., government contracting in the defense space), your network + a good understanding of how business works from the contractor perspective (i.e, P&L) will be more valuable to you than any MBA. Specific certs, like a PMP, may be useful (and quicker to get than an MBA), but I would focus on building those two items (network + business/financial understanding). As Corn suggested, talking to trusted contacts working in these roles today will pay dividends.


One other piece of advice, stay humble. I've helped a couple of military friends transition (typically 0-5s). Realize that is will take awhile to learn the business rhythm, understand the vernacular, and appreciate how risk/reward works within the business. You would rightly balk if a life-long civilian suggested that since he worked at a senior level of responsibility in the civilian world, he should immediately be commissioned as an 0-5 and be put in charge of an infantry battalion. The same hold true going from military to civilian. Your military experience/capabilities will likely prove extremely beneficial, but realize your new employer realizes you don't have all the skills/experience you need day-one and so should you. (As a former military officer who also transitioned, I've seen a couple of hard-chargers who were tone-deaf to this reality and made their own transition that much harder.)

Best of luck to you.

356Fan

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