You'll Be Rich in the Military - in Ways You Don't Think

American Soldier in his office
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I hear "You'll never be rich being in the military" all the time, from lower enlisted to command level officers. The military perpetuates the mentality that we don't make that much money. I'd like to argue that we do make a lot, and that the military is an incredible steppingstone to the middle class.

When I got shipped off to boot camp, I was making about $400 every two weeks. I always thought to myself how much more I had made in the civilian world. But I wasn't taking into account what didn't show up in my paycheck. Here are 10 big financial benefits of serving in the military:

  1. Training. Depending on your service and military occupational specialty, you'll get up to two years of training before reaching your first duty station. Much of this training translates straight into college credits -- and it looks great on a résumé.
  2. Retirement. The military is one of the last employers in America to offer retirement plans. After serving a mere 20 years, service members can choose to separate with 50 percent of their base pay every month for the rest of their lives. If they're eligible, they can stay up to 30 years to receive 75 percent of their base pay, and high-grade officers can retire with 40 years to receive 100 percent.
  3. Health care. While serving on active duty, service members and their families (spouse and children) will have free health care through Tricare so they are in the peak physical and medical condition they need for their jobs.
  4. Dental. Dental is free for service members, because good oral hygiene is necessary to maintain a deployable status.
  5. Commissary. The commissary is pretty much just an enormous grocery store, with better-than-Walmart (WMT) prices (most of the time). They also have enormous "lot sales" every so often where they have blowout prices of stuff you actually want.
  6. Basic Allowance for Housing. When you're a low enlisted rank, they'll stick you in the barracks (or dorms in the Air Force). The barracks, as terrible as they may seem at the time, save you so much money it's incredible. Typically, they're in the same parking lot as your workplace, so the commute is eliminated. Utilities are included, too. And you don't need to write a check for rent and worry that you won't have enough money, because the basic allowance for housing is granted to all military members. The allowance also gives you the ability to rent a house off-base or to use base housing.
  7. Tuition assistance. Depending on your branch of service, you could be eligible for up to $4,500 per year toward college classes. By taking full advantage of this, you could have an associates's degree in one enlistment and a bachelor's in two. And don't forget that you could earn college credit for your training through the College-Level Examination Program or Defense Activity for Non-Traditional Education Support.
  8. The GI Bill. Typically used after separation, the GI Bill allows you to go to college at no extra cost to you. During the first year of your service, you will pay $100 per month toward the GI Bill. After that, you owe nothing. Service members can choose among two versions (the Montgomery GI Bill and the Post 9/11 GI Bill), and there is a way to get a few extra free credit hours if you switch between them in a specific way. It's also transferable to your spouse or children, although you need to serve at least four extra years after the election has been made.
  9. Thrift Savings Plan. If a pension plan wasn't enough, military members have access to the retirement savings plan, with a traditional and Roth option. It bases allocations on stock indexes and has extremely low operating costs -- read: very, very low expense ratios.
  10. Veterans Affairs loans. VA loans resemble Federal Housing Administration loans -- with a few awesome advantages. These include no down payment and no mortgage insurance requirement. They also usually let you have access to the best current rates available. And you maintain this benefit for life. Married to another service member? Then you each get your own VA loan to use.

Other benefits include military discounts (thank you business owners!), networking (you'll meet hundreds, if not thousands of people during your tour), experience (management and occupational), VA benefits and free simple income tax filings.

I'm not advocating that you join the military for financial reasons, but I am trying to highlight some of the financial perks that you wouldn't see in your paycheck.

The 7 Worst Things You Can Do With a Pay Raise
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You'll Be Rich in the Military - in Ways You Don't Think
You've been eyeing that fancy new car (or boat), or you've had your eye on upgrading your home, but you haven't been able to swing the down payment. Well, now you've got the money -- right?

Wrong. Just because you can now pony up a down payment, that doesn't mean you can afford the monthly payments you'll have for many years. By using your raise as a down payment on a purchase you still can't technically afford, you're locking yourself into years of unnecessary stress.
What if you're a renter? Sure, you could move into an apartment that costs $150 more a month. But that will be one more "permanent" expense on your budget. You can't easily get out of a lease if you change your mind, lose your job or decide you want to make a career shift.

Ask yourself if you really need a "better" apartment, or if you have all the space you need now -- in which case, you can use that extra cash each month on other things you really do need.
Now that you're in the money, you may be tempted to live the high life (or, at least, a higher life). Lots of people fall into this trap, and it's known as lifestyle inflation -- upgrading your standard of living with every pay raise so that you never use the money for more sensible things, like saving for retirement or paying down your credit card debt.

It's easy to feel the siren call of dinners at fancy restaurants, huge flat-screen TVs, and golf club memberships -- which seem like must-haves now that you're earning more. But making your lifestyle cushier every time your income rises is a vicious cycle, and it's a lot harder to downgrade to your former lifestyle than you may think. Don't feel compelled to up your spending just because you can.
OK, so you realize you shouldn't buy a fancy living room set or spring for a massive flatscreen -- but what about renting to own? You may not be able to afford to buy these things, but renting to own seems like it would be a decent alternative. Right?

Wrong. While the monthly payments at rent-to-own stores may seem reasonable, what you pay in the long run for a new Xbox or stainless steel refrigerator is much more than it would be if you purchased the item outright. For example, Consumer Reports in 2011 calculated that a Toshiba (TOSBF) laptop that cost $612 to buy outright would cost $1,872 at a rent-to-own store. Just like you shouldn't charge items you can't afford to buy, financing them through a rent-to-own agreement is a road to nowhere.
Speaking of financing purchases you can't afford –- avoid using your windfall as an excuse to buy stock on margin.

What's a margin purchase? If you want to buy a lot of stock, but you don't have enough money to do so, you can open a margin account. You'll only be required to put down the initial margin (similar to a down payment), and the brokerage firm lends you the rest of the money.

The trouble with margin buying -- as with any scenario in which you're trying to get more than you can really afford -- is that the longer you hold onto to this stock, more money you'll fork over in interest. And if you can't make your payments? The securities in your margin account serve as collateral.

The returns (and what if the stock goes down?) aren't worth the risk. If you can't afford to buy the shares on your own, don't buy them.
Remember that deli you've always dreamed of owning (even though you have no idea how to run a deli)? Or your brother-in-law's big wacky idea that he promises just can't fail?

Don't use your new income boost to create the down payment on a business loan for these ideas.

Its one thing to invest in an existing business that's rapidly growing. But don't use your bonus or some accumulated pay raise as a down payment on a business loan for an untested business.

Make sure that if you do choose to invest in a business or business idea, it's one that demonstrates a solid future with solid returns. And remember: You won't lose your shirt if you stick with cash investing, rather than leveraged deals.
You're certainly welcome to loan money to a friend or relative if you want, but if you do, you'd better be ready to kiss that relationship goodbye. The instant someone owes you money, relationships become strained, resentments boil up, and things get weird fast.

If you want to help out someone who's going through a rough patch, you're both better off if you find another way of doing so, like helping them revise their résumé to find a new job or offering to bring some groceries to their house.

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