Friday, September 4, 2020

Making Money in the Foreign Service

We have really enjoyed taking the past few months and years to think about our long-term financial goals and make plans for how to get there. You can find the full spectrum of financial security among U.S. Foreign Service members: those who live paycheck to paycheck, those who were doing fine until a devstating illness or unforeseen circumstance changed everything, those who are comfortable, and those who are very well off. I thought I would take some of the most general guidelines we've learned and share them for those looking for information on where to begin. This is especially relevant if you're starting out in the Foreign Service but to some extent probably applies to most everyone.

The most important thing we've learned through introspection and research is that everyone's financial goals are a little bit different. Some people want to increase their net income as much as possible as soon as possible. Others want to build wealth in the long-term for future generations. It's crucial that each person as an individual or household decide what your goals are first. Then you can figure out the best way to achieve those goals.

No matter how young you are or how early in your career you are, it's important to think about retirement. In fact, the sooner you start, the better! I've heard generic advice like "save 10-15% of what you earn as retirement" before, but that may or may not be the most effective for you. For members of the Church of Jesus Christ of Latter-day Saints (like me) or others who tithe 10% of their gross income and have other expenses like union dues, health insurance, and more, putting away an additional 15% may not work. Other expenses like eldercare or chronic illness treatment may make it less feasible, too. Moreover, shorter-term goals like saving up for a down payment on a home might mean those contributions change over time. Regardless, it's worth thinking about retirement strategically and revisiting retirement preparations regularly.

In the U.S. Department of State, we have access to what's called a Thrift Savings Plan (TSP), where the government will match our contributions up to a certain percentage each year. Everyone agrees maximizing your TSP's matching is a good idea and that you should diversify your investment, but there are a lot of differing opinions about how best to do that given the fact that you can choose how your savings are allocated between fund types. Read up on different philosophies, compare the pros and cons (e.g., how much time and energy you need to spend monitoring financial markets to sustain that strategy, what the growth rates are for fund types, and how much risk you want to take), and then choose what's right for you. The free TSP allocation guide is a great place to start.

If you lack knowledge and experience in this area, a financial advisor (or two or three) can be a huge help. We had the best experience talking to experts who could understand our unique situation: people who are current or former Foreign Service members or who worked with our community frequently. One excellent resource is The Purpose of Money; on their website you can sign up to get a financial tips newsletter, enjoy a financial literacy podcast, or set up a free consultation. We also talked to mentors we knew had successfully invested in real estate and other areas we were interested in so we could benefit from their wisdom and experience. Most people are happy to pay it forward.

I hope this post was helpful to other folks on their own financial journeys. If you have your own advice or recommended resources to share, please leave them in the comments below!

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