Serving in the military comes with financial perks such as special duty pays, bonuses and tax-free income while serving in combat zones. When that extra money is coming in, it can feel like a mini lottery victory, but if you don't have a plan for your extra pay, it can disappear fast, with nothing to show for it at the end of your service.
The key is to use your bonus or extra pay to build a stronger, more stable financial future -- one that can withstand the constant changes of military life and financially prepare you for life after service.
Here are some ideas for managing your extra pay and bonuses in various financial situations.
Don’t Count on Bonuses or Special Duty Pays
First things first. Receiving special duty pay, such as jump, dive or flight pay, is great news for your financial planning. That said, be careful about counting on the money. That pay can disappear if you get injured, reassigned or disqualified medically.
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If your budget relies on that extra money to cover your car payment or rent, losing it could cause you to go into debt or, worse, miss payments. The same applies to benefits such as separation pay during a TDY, deployment pay or hardship duty pay. They aren't guaranteed and don't last forever.
Build your regular budget based only on your base pay and allowances -- such as the Basic Allowance for Housing (BAH) and the Basic Allowance for Subsistence (BAS). Treat special pay and bonuses as extra or gravy on top to move your finances forward.
Living Paycheck to Paycheck
If you’re struggling or living from payday to payday, this is where extra money can really help change your situation and reduce stress. Here’s what you can do to get ahead.
1. Build an emergency fund.
Use your special pay or bonus to save at least $500 to $1,000 in a separate savings account. This money should be saved for true emergencies, such as car repairs, medical bills or a last-minute plane ticket home. Don’t use the money for wants, such as weekend trips or concert tickets. A small emergency fund helps you avoid using a credit card the next time life throws a curveball.
2. Pay down high-interest debt.
If you have credit-card debt or loans with high interest rates, use your bonus to pay a chunk of those down. The less you owe, the more freedom you have. Military life is already unpredictable, and debt makes it even harder to adapt and overcome financial challenges.
3. Don’t create new payments.
Use the time you are getting special pay or bonuses to get ahead, not behind. Avoid using your bonus cash to pay for something that adds a new monthly bill. Financing a new car or upgrading your phone might feel good in the short term, but it eats into your future paychecks and erases your special savings.
No Debt or Have Some Savings
If you don’t have any debt and possibly some savings built up, you’re doing awesome! The sacrifices you made to get to this point were worth it. Now, you can use extra income and bonuses to build long-term financial strength and freedom.
1. Build a bigger emergency fund.
If you have a small emergency fund, use your extra pay to push for three to six months of expenses. Why? If you get out, separate early or undergo a permanent change-of-station (PCS) move with delays in pay, this fund gives you breathing room. It’s especially important for military families with one income or transitioning members. More money in savings means less stress and worry when things don’t go according to plan.
2. Plan ahead for big expenses.
Think about what’s coming: PCS season, school costs, TDY travel, car repairs. Create separate “sinking funds” for those. It’s just a fancy term for savings buckets; you know what it’s for, and you’re ready when it hits.
3. Start investing.
If you’re contributing to the Thrift Savings Plan (TSP), consider upping your contribution. If not, start now, especially if you’re getting the Blended Retirement System (BRS) match. You can also open a Roth IRA if you want more flexibility or plan to separate before retirement. IRAs are also a fantastic way to save for a military spouse’s retirement.
4. Education savings
Using extra pay or a bonus to save for your child’s education is a smart way to turn a temporary boost into long-term impact. By putting that money into an education savings account, such as a 529 plan, you’re giving it time to grow tax free and helping ease the financial burden of future tuition and books. Even small contributions now can make a big difference later, and it’s a meaningful way to invest in your child’s future success.
Strong Financial Spot
If you’ve already knocked out debt, built savings and are investing, your special duty pay or bonus can help you grow even more.
1. Boost your investments.
Whether it's your TSP, Roth IRA or a brokerage account, put your money to work. Time and compound interest are powerful factors, especially for younger service members. The more you can put in, the better.
2. Invest in your skills or side hustle.
Take a course, hire a coach, get a certification or buy equipment that helps you build a side income or get ahead post-military. You’re not just growing cash; you’re growing options and opportunities.
3. Increase your quality of life.
When you don’t have debt and are already investing for the future, you can use part of a bonus to increase your quality of life. That might be a newer car or the latest iPhone. Or consider helping a fellow service member or donating to a cause that matters to you. You can also set aside 10%-15% of your bonus for something fun, guilt free. Put the rest to work.
Rule of Thumb: The 50/30/20 Split
This isn’t a hard rule, just a guide to help you stay balanced:
- 50% to your future (debt, savings, investing)
- 30% to current needs (repairs, bills, other needs)
- 20% to fun (something for you or your family)
Military Life Changes Fast
Special pays and bonuses are great, but they shouldn’t be the foundation of your finances. Your career could shift with one injury, one set of orders or one bad jump.
Instead, use your extra pay to build a solid financial base. That means less stress, more freedom and the ability to say yes to the life you want now and after your time in uniform. You don’t want to look back and wish you had planned your extra pay better. In the future, you will be grateful you didn’t blow all the special income.
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