There is no “right way” to create a budget, but as long as you’re spending less than you’re making, you’re on the right track. However, there are a number of unique circumstances that you need to account for when creating and sticking to a budget as a military servicemember.
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Rob Aeschbach, a financial planner, U.S. Marine Corp Veteran and owner of The Military Financial Planner LLC says that the biggest thing to be aware of with military pay is that it changes a lot.
“Every time you move you get a new housing allowance. If you deploy, some allowances start and some stop. If you go from ship to shore duty or from shore to ship duty you get changes in sea pay and allowances and deductions,” says Aeschbach.
While all the changes may make keeping track of everything a little complicated, the good news is that military members get a lot of pay raises, which you can factor into budgeting. The average enlistee will get about 6 pay raises in a 4-year period per Aeschbach.
At home, your pay is standard and predictable because you know what you’ll be getting and how much you’ll receive from things like the Basic Allowance for Subsistence (BAS) and Basic Allowance for Housing (BAH).
When deployed, though, you receive a Family Separation Allowance, and depending on where you are deployed to and what branch of the military you are in, you may receive Hazardous Duty Pay, Imminent Danger Pay/Hostile Fire Pay or such specialized incentives like Diving Pay, which are tax-free.
Knowing how much you’re getting paid and what circumstances change that amount is essential to budgeting properly.
Expenses and Budgeting
For allocating your gross income, Aeschbach recommends following a principle called the 60% Budget. In the plan, originally coined in the early 2000’s by Richard Jenkins, a former editor-in-chief at MSN Money, your committed expenses should add up to no more than 60% of your gross income.
Committed expenses include everything you pay routinely each and every month, like rent, utilities, tuition, gym memberships or even subscription services like Netflix (NASDAQ:NFLX), because you pay for it automatically.
After committed expenses, the plan is to allocate the remaining 40% in equal intervals between short term savings, long term savings (or paying down debt), retirement, and leaving 10% to do whatever you’d like with--or, fun money.
Aeschbach recommends short term savings be used for irregular expenses like home repairs, auto maintenance, or plane tickets to see an ailing relative, while long term savings be used for college tuition or a down payment on a house.
Mistakes to Avoid
One of the biggest mistakes Aeschbach sees with servicemembers is misusing their housing allowance. “It’s designed so that about 80% of it pays for your rent, and the other 20% is supposed to pay for utilities and renter’s insurance,” explains Aeschbach.
Just because you have X amount to spend from the BAH doesn’t mean you should rent or buy a place for that amount—you need to account for the associated costs that come with renting/buying. You can very easily blow your budget by renting out of your means, or by purchasing a car out of your budget.
“After rent, the next biggest expense in a family’s budget is a car—or cars—plus insurance,” says Aeschbach. Thinking ahead to how much you can spend for a car and buying appropriately is important.
Lastly, when you come back from deployment with a big bonus from Combat Pay, Sea Pay, or any other tax-free allowances you received, DON’T BLOW IT! Aeschbach warns that a Vegas trip or a motorcycle may seem enticing when you have a large lump sum coming your way, but you need to make that money last and stick to your budget.