How to ensure your day-to-day finances stay healthy.

Responsibly managing money is important for everyone, but the stakes can be even higher in the military. The often transient nature of military life definitely brings unique challenges. 

First, military pay isn't quite as low as it's often made out to be. For those with limited work experience and no college degree, the military typically offers relatively lucrative compensation compared to the private sector. For skilled workers, the military's salary progression can lag behind similar careers in the private sector, but the advantages of a military pension can be substantial as well. Either way, budgeting and saving are essential skill sets for military personnel. 

To illustrate the importance of this issue, let's examine the challenges associated with managing day-to-day finances in the military.

Managing Money While Serving

According to a National Foundation for Credit Counseling survey, 77 percent of servicemembers admitted having financial concerns. Additionally, the percentage of servicemembers with month-to-month credit card debt is 25 percent higher than that of the general public.

Since military salaries are modest, and many servicemembers come from families without extensive financial resources, the risks of high-interest credit debt and predatory lending are elevated. To combat this threat, the military has made an effort to stress financial literacy principles and careful budgeting practices.

The Military Saves initiative, for example, is a comprehensive resource for service personnel designed to encourage smart spending and saving. It offers a trove of information geared at helping military members manage their month-to-month finances.

The first step to effective budgeting is to have a clear understanding of your income. In the military, this can be more complex due to the various types of pay and allowances, such as Basic Allowance for Housing (BAH), Basic Allowance for Subsistence (BAS), and other special duty pay. Be sure to account for all these sources of income when setting up your budget.

Once you clearly understand your income, the next step is to break down your expenses. Essential expenses such as housing, food, utilities, and transportation should be your first consideration. Then, move on to discretionary spending, such as entertainment or eating out. Lastly, make sure to factor in savings and debt repayment.

A good budgeting rule to follow is the 50/30/20 rule. According to this guideline, 50% of your income should go towards essential expenses, 30% towards discretionary spending, and 20% towards savings or debt repayment.

The Importance of Saving

While budgeting helps you manage your current financial situation, saving allows you to plan for your future. The military provides several opportunities for saving and investment. The Thrift Savings Plan (TSP) is one such option. It's a low-cost retirement savings plan, similar to a 401(k), specifically for military servicemembers. Regular contributions to your TSP can be a significant step towards securing your financial future.

Additionally, the military offers the Savings Deposit Program (SDP) during deployment for those receiving Hostile Fire Pay. This program provides a guaranteed 10% annual return on investments up to $10,000, making it an excellent choice for servicemembers to grow their savings while deployed.

Life can throw unexpected curveballs at anyone, but these unexpected events can be even more prevalent in the military. An emergency fund can help you manage these unforeseen expenses without going into debt. Aim to have at least three to six months' living expenses in a readily accessible savings account. Remember, this fund isn't for regular expenses or discretionary spending – it's for emergencies only.

Improving Your Financial Situation on a Military Salary

While financial education is undoubtedly important, the military provides various material benefits that can be leveraged to make budgeting less painful. These include:

  • Tax-free housing benefits.
  • Lower, capped loan rates that the general public can't access.
  • Tax-free products and services on base.
  • Perks such as free tickets, military discounts, and preferred job placement.
  • Educational assistance.
  • Inexpensive life insurance.
  • Health care.

Understanding how to maximize the value from this wide array of benefits can help relieve the pressure on your month-to-month finances. Additionally, it's essential to understand the fundamentals of your benefits. This includes how your housing benefits are impacted by where you live, your number of dependents, your rank, food and clothing allowances, re-enlistment and other bonuses, and incentive pay.

Servicemembers who grasp the sometimes complex military benefits and pay scale have an advantage when it comes to successful budgeting and saving. Extracting a bit more monetary value from these benefits can relieve financial pressure, especially when one has a limited military income.

The Takeaway

No one will ever become wealthy on a soldier or sailor's salary. However, the overall compensation package offered by the military is enough for a comfortable life if you adhere to smart budgeting and saving principles.

And remember - if you find yourself in financial trouble, the military offers free financial counseling services through organizations like Military OneSource. These professionals understand the unique financial circumstances of military life and can provide personalized advice on budgeting and saving. Take advantage of these resources to help manage your financial situation.