Annual training can produce additional income ranging from roughly $3,300 to upward of $17,000 for enlisted guardsmen and nearly $6,800 to more than $21,700 for officers.
And of the four income goals beyond basic living expenses -- creating or growing an emergency fund; paying off debt; investing for retirement; and saving for planned spending -- figuring out which one is the best fit depends on the individual, according to Adrienne Ross, AFC®, CFP®, ChFC®, owner of Clear Insight Financial Planning.
"It's easy to look at the annual training pay as 'extra' money to spend," said Ross, who has spent more than a decade helping military families, including her own, make the most of their money. "Deciding how best to use the money depends on your unique situation. If you already have an emergency fund, you have paid off high-interest debt and you are contributing to your retirement savings, you have built a solid foundation. Using the extra money from annual training to fund college savings, goals, family goals and other goals might be right for you."
1. Start or grow your emergency fund
When creating an emergency fund, consider how much it would cost if your car needed a new transmission at the same time your dog got sick. Or if you or your spouse lost a job.
Strongly consider putting some -- or all -- of your AT pay into a dedicated bank account. If you do have an emergency fund, take a portion of your AT and make your emergency fund bigger.
2. Pay off debt
Paying off high-interest debt is always a smart financial move. Not only will it decrease the amount of interest paid over time, but will provide financial flexibility due to eliminating monthly minimum payments.
High-interest debt is generally anything more than a 4% or 5% interest rate. For those with high-interest rate debt who already have a solid emergency fund, use AT pay to pay down or pay off that high-interest rate debt.
Debt with lower interest rates may be a priority for paying off, for the flexibility it provides. This decision will depend on your specific situation. Are you comfortable with a $500 car payment each month, or is it sometimes hard to make that payment?
3. Invest for retirement
Use AT pay to boost your retirement savings.
"Annual training pay is a great opportunity for topping off retirement accounts," Ross said. "At a minimum, it is important to make sure to capture the full Blended Retirement System matching contributions that are available. Contributing at least 5% of your base pay will make sure you get the full DoD matching contributions."
Reservists, she said, need to make sure they're coordinating thrift-savings plan contributions with their civilian employer's retirement plan. The maximum-allowed employee contribution across all retirement plans for 2022 is $20,500.
To avoid excess contributions, Ross suggests tracking year-to-date contributions, which can be found on civilian pay and leave-and-earnings statements.
"Keeping track of total contributions to all retirement accounts throughout the year will help you catch and adjust excess contributions prior to the end of the calendar year," she said.
Guardsmen who are in the legacy retirement system will still benefit from putting a portion of their AT pay into a TSP as long as it doesn't interfere with the contribution limits from their civilian employer.
4. Save for planned spending
Another smart use of AT pay is to save it for planned spending. Whether planning to buy a new car next year, or your oldest child is a college-bound high school junior, funding the savings for these expenses can make it easier when the expenses happen.
Every service member has different financial planning concerns, but they can all make progress by using AT pay wisely.
"The key is to make deliberate decisions around how to use the money to achieve your goals," Ross said.
Editor's note: Pay ranges came from using the following criteria on the Guard's AT pay estimator:
- Enlisted, E-1, less than four months
- Enlisted, E-9, 40 years
- Officer, O-1, 1 year
- Officer, W-5, 40 years