Reader Profile: JR

The following is the latest post in my "Reader Profiles" series. Each post in this series details the financial situation and challenges of an FMF reader. The purpose of this series is to help us all identify with people like us (in similar situations -- not all will be, of course, but eventually I'm sure you will find someone like you here), get to know the frequent commenters on the site, and hear some financial wisdom/challenges from people other than me.

If you're interested in contributing to this series, then drop me an email. The series seems to be very popular with readers and I need a steady stream of new ones to keep it going.

Next in the series is FMF reader JR. He answered my questions (in red below) as follows:

Please tell us about yourself.

Currently serving as an officer in the U.S. Army Corps of Engineers. I'm 26 years old, graduated with a B.S. Mechanical Engineering w/ honors from USMA in '08, and am currently finishing a second assignment in Germany. Despite the stereotypes of military service as a low-paying government job, it certainly has its benefits and I've been able to gain some valuable experience through this line of work which I otherwise may not have been able to.

The job often feels like a full job-and-a-half due to the hours I put into it, but I consider this an investment as I hope to transition into a career on the civilian side in a couple years. I started off as an engineer platoon leader (horizontal/vertical troop construction), then worked as staff officer for the same construction battalion during a deployment to Afghanistan, and am now serving as a sort of facilities manager centrally involved in planning and developing projects for renovations and some new construction to certain facilities here in Germany. The work is exciting, as some of these are order of magnitude $50+ million projects, and I'm continually learning through developing relationships with the architects, civil/structural/electrical/environmental engineers, LEEDS advisors, etc., as well as working with a lot of partner organizations and vested stakeholders. (Don't think I'd be handed this kind of responsibility or experience on the civilian side at 26 yrs old...)

Describe your financial situation.

Initial base pay for junior officers started pretty low at $31K, but is a bit higher now through promotions, approximately $55K. Benefits also include a non-taxable allowance for housing and sustenance/incidentals. Overall my take-home pay after taxes is about $53K. I don't own a home or other significant assets, except for the Toyota bought and paid for in 2009 (it's an '08 model, but used). I've managed to accumulate about $200K total since earning my commission in '08, this is distributed into about $170K in investments and $30K in checking/savings. Additionally, I have $2900 left to pay off on a $30K "career starter loan" from 2007. This might not have been worth it in retrospect, but the terms offered at the time seemed too good to pass up - $30K at 1% interest payed off over five years. All in all, my balance sheet can be summarized as follows:

• (+) $35.8 K various checking and savings accounts


• (+) $123.6 K individual investments in mutual funds (40% large cap, 30% international, 20% bonds/cash, 10% small/other)


• (+) $28.9 K Roth IRA investments (45% large cap, 45% international, 10% cash)


• (+) $15 K invested in an enterprising company which I believe may open a bit of a blue market in the field of medical transcription - may pay off after IPO, may not...


• (+) $5 K car (KBB probably closer to 10K now but I almost consider this a sunk cost, and will need to sell it relatively quickly when I go back to the US)


• (-) $2.9 K (remaining balance on 30K starter loan, paid off in ~$520 installments)

Monthly expenses are minimal since I am not married and have no kids. About $520 for the loan payment, $300-500 per month for food, $100 in gas, $150 for car insurance (higher in Germany), and another $100 for incidental expenses or activities. This includes a small premium for the military's version of term life insurance which provides a $400K benefit on top of the standard death gratuity while in the military. I receive free health care and dental service through the TRICARE program. The remaining amount is generally invested into my Roth IRA or individual account index funds with Vanguard. I try to be very generous with family as well, but they are all more or less self-sufficient as well. Overall I only save about $2K out of the ~$4.4K take home pay each month, but I will be able to save a little more in the near future. I'm also excited to learn of the soon-to-come Roth TSP option, this will be another incentive to save even more.

What are your plans for the future?

I intend to resign my commission and go back to school to pursue a career on the civilian side. I believe I've done well for myself so far, and the military retirement pension at 20 years is a bit appealing, but at the same time I want to say without bragging that I feel my aptitudes and work ethic will allow me to do even better elsewhere. I'm still split right now which profession I want to pursue, but have at least a year more to figure this out -- I'm interested in the fields of both nuclear engineering and also in endocrinology / neurological sciences. Either field will require going back to school for at least a masters degree and perhaps even a PhD/MD, but I was diligent in school before and I'm ready to work towards this challenge. I'm also very interested of course to settle down and have a family at some point, I don't want to wait until it's too late ...

What are the current financial situations you're facing?

I take pride in being able to say I've been self-sufficient since leaving the nest almost ten years ago. I didn't have to pay for college directly (thanks to the benevolent taxpayers of America) but did incur a service obligation and have carried this out in some often demanding work over the years. Currently I'm looking to save as much as possible for a graduate's degree. My biggest concern is that experience and skills developed as an officer in the corps of engineers will not translate easily into the profession on the civilian side that I want to pursue. Like anyone, I'd love to have a career in a field that offers both job satisfaction while also maximizing income potential. But if I have to go back to scratch and work my way from another entry-level job or internship I'm worried it will be too much of a step back.

What's your best piece of advice or general philosophy on personal finance?

I'd love to reiterate the advice I see on the blog so much - "the fastest road to building wealth is maximizing income and minimizing expenses - i.e. max what you actually keep" (or some version of this) - but I also feel wealth is only  a means to an end. If there's a goal you want to pursue, then go ahead and invest your time and money into it, after all you only live once. Just make sure it's something you really want and not merely a temporary whim. More to the point, having a plan on how to spend the money is as important as how you earn it.

Comments

[Mike Hunt]

Hi JR,

It sounds like you have done well for yourself thus far.

When I first got my Masters I received an offer at the Naval Surface Warfare Center, and ended up working for a Blue Chip company instead (Honeywell, formerly Allied Signal)- I wonder if I joined NSWC if my career path would be similar to yours since I was also in Mechanical & Aerospace Engineering...

Have you thought about the type of role you'd best be suited for along with the company size and industry?

-Mike

[Leigh]

Sounds like you're doing quite well, JR. I'm confused as to why you haven't invested in the TSP at all?

Why not work in the mechanical engineering field back in the US instead of going back to school?

Are you enjoying life?

[Old Limey]

JR:
You remind me of one of the very best engineers it was my good fortune to work very closely with and to get to know very well. This guy was hired by the aerospace company in California that I worked for after returning from Vietnam and resigning his commission as an Army captain. He was burned out after his unpleasant Vietnam experiences and I think it may have then got to him to then find himself working on a weapon of mass destruction, the re-entry vehicle for a sub-launched ICBM for the US and British Navies. He then decided that he wanted to become a veterinarian. He obtained a full scholarship to Cambridge University in England and then after his education was completed he and his wife moved back to California where he opened his practice near his old alma mater, Stanford University. During a business trip to England, a couple of us visited him where he and his wife had rooms in a centuries old home close to the River Cam. He was the only student I have ever known that rowed himself back and forth to school every day.

[jim]

You're doing very well financially.

I'm puzzled how you'd manage to save $200k in just four years earning $31k to $55k.

[Luis]

To someone who will have a large nest egg by retirement through their high savings rate, I'd recommend that they invest all equities within their Roth IRA accounts. Leave the bonds, cash, and other investment allocations to your other accounts, accounts that will require an MRD upon retirement. This will reduce your future tax burden.

[Lance @ Money Life and More]

Seems like you are doing well! Congrats on being able to save up so much money. If you go back to school is the GI bill going to cover you or are you going to have to pay out of pocket?

[RichUncle EL]

He saved this much because military officers do not have to pay for housing, thus he can save more than the average person. This coupled with a government retirement plan. Thanks for sharing your story.

[Steve Mertz]

Thanks for serving and congratulations! For 26 you are kicking butt. I hope you might consider getting out of bonds completely and pick some stocks or ETF's.
Continued Success!

[Mark]

I think he's doing great. If he keeps saving at even half the pace he is, it won't matter that much whether or not he puts 10-30% in cash or bonds or not.

[AC]

I second Jim's question of being puzzled how you were able to save 200k over 4 years since you only earned 31k to 55k per year. Assuming you didn't have any other expenditures and saved your entire income, it still doesn't come up to 200k. Did you make a lot through other investments?

[JR]

@ Luis: Thanks for the feedback, this is the kind of input I was hoping to get in submitting my info. Right now I happen to have some leftover cash in an IRA while waiting to accumulate enough for a minimum initial investment for particular index fund.

@ Jim & AC: I'm a bit curious myself to be honest, especially since it hasn't exactly been a killer market since I began investing in 2006-7. I like to use Quicken because I've gotten used to it by now and it makes lots of pretty graphs - right now it's telling me I've actually been saving about 50% of total income including allowances, but closer to 70-80% on average not including the housing allowance. I think the rest can be attributed to tax savings during deployments (along with an additional imminent danger allowance ~ a couple hundred each month), and some generous parents who provided a $10K graduation gift. This might not be widely known, but there's a good portion of service members that don't mind or even look forward to deployments because of the financial incentives. I actually had a lot of fun working on certain projects - building a vocational school, a dam, a "bridge" if you can call it that - but it was a bit easier for me being single.

@Leigh: Will admit I'm not the most prudent financial planner, still learning. Roth TSP option will supposedly become available in May 2012 and I plan to take advantage of this to the fullest. Yes I'm enjoying Germany tremendously, but being so far away from family for this long has had its toll and I'm ready to go back.

@OldLimey: Your story is humorous, is that a crack at my frugality for driving a Toyota? I'd be lying if said I hadn't considered upgrading to an Audi before leaving Germany... can't beat the engineering over here.

[DM]

JR - you're doing very well for your age (I'm only a year older and not nearly in the position you are)!

Thank you for your service!

[Sam]

Excellent work by 26! Hopefully your profile motivates others and makes people believer that there is way more money out there than people know.