One of the (many) unique things about being in the military is that you get regular pay increases every January, when the new pay tables are implemented. This gives you the opportunity to plan your spending for the following year. New housing allowances and BAS rates were recently posted, so I took a few minutes to look at my family's financial plans for 2009. If I don't plan ahead, that extra money will slip into our everyday spending instead of working towards our financial goals.
Here's what I did:
I started by getting a copy of my husband's last LES. These can be printed at the MyPay website.Then I made a note of the new, updated amounts. (Thanks to rateprotection, BAH amounts won't go down even if your areas rate falls.)I did some estimating for changes in taxes, social security andmedicare, and figured out what the net change would be. Then, Ithought about what would be the best use for this extra money? Thereare three main choices:
- Pay off debt: This is obviously very important. Debtreduction should be a very high priority for everyone. I have a prettyambitious debt reduction plan and we're meeting our goals so far.
- Save for retirement: In a perfect world, we would all bemaxing out our IRAs and putting a good chunk into TSP each month. Werecently reduced the amount that we're saving for retirement to paydown our debt faster. This makes me very nervous.
- Build an emergency fund: Experts say that you should have3-6 months of expenses in an accessible account. I used to think thatwe didn't need that much because military paychecks are pretty secure,but then I started thinking about the unexpected expenses thatsometimes come with military life, and I heard a few horror stories ofpeople's paychecks being messed up. Now I'm thinking that maybe 3-6months expenses wouldn't be such a bad idea. So far, we've saved aboutmonth's worth of expenses.
For my family, I am putting a chunk away each month into anemergency fund, and I am putting the rest into TSP and IRAs. We'realready paying down our debt pretty fast, and we have a small emergencyfund. We aren't saving as much for retirement as I'd like, so that ismy highest priority. Your family's choices will probably be different,depending on your debt situation, the size of your emergency fund, andyour retirement plans.
I've attached an example (I got the LES from Wikipedia):
In this case, this Staff Sargeant at McGuire Air Force Base will beearning an additional $119 per month in January, minus a little extrain deductions for taxes. She could pay that money towards a creditcard, put some in her TSP account, put some into a savings account, orsome combination thereof. Her choices will depending on her situation.
What we all need to avoid is letting that extra money disappear into our existing budget. A yearly increase is a benefit that very few people can count on. Let's use it to our financial advantage!