One of the great things about U.S. military pay and benefits is that there are (almost) always annual increases in pays and allowances. This gives military service members the opportunity to do a financial reset every year.
But if you don't have a plan for the extra money, it is easy for it to slip into your day-to-day spending. So let's take a little time to prep your finances for the new year.
1. Create a New Spending Plan
Military basic pay will increase by 5.2% for 2024. This is a big raise. Even a new recruit will be earning an extra $170 per month. You'll see that increase in your January mid-month paycheck.
In addition, the Basic Allowance for Subsistence (BAS) has increased, and your Basic Allowance for Housing (BAH) may have gone up, depending on your location and paygrade. Don't forget that even if BAH goes down, you are (almost always) grandfathered into the older, higher rate.
Use these new figures to calculate your spending plan for 2024, or however long you'll be at those same pay levels.
What to do with the extra money?
The goal is to ensure that your extra money is put to good work. Now, some of us are barely scraping by, and that money is simply going straight into the refrigerator or gas tank.
If that's you, I'm glad you are getting this increase! But also go and meet with your installation's personal financial manager or personal financial counselor. They can help you identify resources so you aren't just scraping by.
But if you don't desperately need this money to cover basic living expenses, you should do something productive with it. In most cases, the major areas are:
- Building your emergency fund
- Paying down debt
- Saving for future expenses, such as car repairs
- Investing for the long term, such as retirement savings
2. Build Your Emergency Fund
An emergency fund is the first step in your financial foundation. An emergency fund allows you to handle surprises without having to go into (more) debt. Some people think military families don't need emergency funds. I think military families need emergency funds more than civilian families.
Your initial goal should be smaller. Some people start with $1,000. I started my first emergency fund with the goal of being able to get my whole family "home" in case of emergency. Your needs will vary based on your family size, your location, whether you live on or off base, etc.
You may want to keep your emergency fund somewhere a little harder to reach than your regular bank account. Maybe you open an account with another credit union or use that old bank account you have from before you joined the military. Some online banks offer higher interest rates on savings. Whatever works for you!
Eventually, you'll want to have at least 3-6 months of living expenses in your emergency fund. But that won't happen overnight! (Unless you get a bonus or other windfall. In that case, it is super-smart to put that money toward an emergency fund.)
3. Pay Down Debt
If you are carrying high-interest consumer debt, make a goal to put your higher income toward repayment. I like to make a visual chart to help me see the progress that I've made. You can find free printable charts online or make your own.
As you pay down your debt, you'll be charged less interest each month, which means more money will go to paying off the balance. And when it's paid off, you can use that money for something even better!
4. Save for Future Expenses
Nearly all financial "emergencies" aren't actually emergencies at all. They're usually just expenses that could have been anticipated but weren't planned for. Cars need new tires, kids outgrow shoes and uniforms wear out. Take some time to list the irregular expenses in your life and make a plan to save for them.
While emergency funds and paying down debt are financial foundations, saving for future expenses is where the magic really starts to happen. It's like building a house, and then the walls go up and you're like, "Wow! Now we're getting somewhere!"
Some banks will let you set up sub-accounts, or you can actually have multiple bank accounts. Or you can just keep track on paper or using software. I used paper and pen for years, and it really was a turning point in our financial life.
5. Invest for the Long Term
Long-term investing is the roof on your financial house. It protects you from being out in the cold when you are no longer working for pay.
Military members have a great tax-advantaged investing tool in the Thrift Savings Plan (TSP). It's super simple to log into your MyPay account and increase your TSP contributions. Bump up your contributions 1%, 4% or more. Just be sure that if you are in the Blended Retirement System, you won't max out your contributions before the end of the year, or you'll lose your matching funds.
The military's annual cost-of-living pay increases are a tremendous opportunity to boost your financial growth. Don't let that money slip into your day-to-day spending.
(Bonus: This also applies when you get a time-in-service increase or a promotion raise.)
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