Financial Success for Early-Career Foreign Service Officers
This post is for my brand new, Foreign Service Officers out there! I know there are so many things on your mind right now like bidding on your first tour and figuring out what the 3,000 acronyms you encounter on a daily basis mean(FSI, LNA, PCS, R&R, FSRS, etc.), so I figured I’d do my part to make this initial period easier. I put together a quick and dirty list of the financial things you really need to do once you officially join the foreign service ranks!
Join an overseas health insurance plan
One of the many perks of the FS life is that you have access to an amazing medical unit at the embassy. However, there may be times when they cannot provide all the services you need and you will need to get healthcare locally.
Depending on your post, this could be quite expensive. Having a health insurance plan that covers overseas medical expenses is crucial to ensure you don’t incur a huge medical bill that your health insurance won’t cover. I have personal experience with this as my husband tore his Achilles tendon at our last post, and needed to get an MRI and tons of other expensive tests. Fortunately, we were covered by the FSBP.
Sign up for the TSP
This is a huge one and probably the most important takeaway of the list. The TSP is the federal government’s version of a 401(k) savings plan. These are funds you either contribute on a pre- or after-tax basis directly from your paycheck every two weeks towards your retirement nest egg.
The federal government matches up to the first 5% of your salary that you contribute to the TSP. So, if you contribute 3%, they will contribute another 3% for a total of 6%. If you contribute 5%, they will contribute another 5% for a total of 10%. However, their contribution will never exceed 5% of your salary, even if you (hopefully) contribute much more than that. Even if you have a mountain of debt or other financial priorities that are more imminent than retirement it’s important that you don’t give up free money!
Get your emergency fund set up
Federal government employees have had a rough couple of years with budget stonewalling and government shutdowns. You are now guaranteed back pay after a shutdown due to this law that was passed in 2019. However given the fact that you never know just how long government shutdowns will last, you should really have a cash cushion to alleviate any potential short-term cash concerns. You’ll still need to pay bills and eat even while the government is shut down after all.
Given that your cost of living will vary greatly from post to post, I think a good rule of thumb is to have 3-6 months of net take-home pay put away for a rainy day. These funds should be liquid, and in a high-yield saving account so you earn a bit of interest. Ally Bank, American Express and Capital One are few good options to consider.
One of the most amazing benefits of foreign service officer life is that you have very little overhead. Your housing costs are covered by the DoS, therefore you have a massive opportunity to use your extra cash flow to knock your debt out.
I recommend that FS clients follow a simple “50/30/20” budget formula, with 50% of your take-home pay going towards financial goals, 30% going towards wants(vacation, gifts, shopping), and 20% going towards needs(groceries, gas, insurance premiums, etc). If you have any student loan debt, credit card debt, a car loan, etc. use this first posting to make as big of a dent in your debt as you can. This will set you up for financial flexibility to bid on posts later, that might have less of a service differential, but might be more attractive for your quality of life or career aspirations.
You are beginning a marathon of wealth development now. At times it will feel like you’re not making much progress at all, but this really is a slow gradual process of wealth accumulation. One day you will wake up and see way more money than you thought possible. You’ll likely be too busy bidding on your next post, moving across the world every 2-3 years and exploring amazing new countries to focus on your money very much anyway.
Welcome to this beautiful life! You’re in for an amazing ride!