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Do Not Base Housing Costs on BAH Rates

Two recent comments have me thinking about Basic Allowance for Housing (BAH) and actual housing costs.  In one comment, a person wanted to know the BAH rate for their new location so that they could, "tell the realtor."  In the other comment, a servicemember bought a house "based on the BAH rate."  This concerns me.

BAH is an amazing benefit of military service, and it is certainly part of a servicemember's overall compensation.  Sometimes, it is a very large part of a servicemember's overall compensation.  However, you have to consider BAH as part of your overall financial picture, not as a separate figure.

What do I mean?  Let's take a hypothetical young married couple.  I'm going to completely make up these numbers, so don't yell at me.  I'm trying to keep the math simple.  Let's say that the servicemember's base pay and BAS equal $2500 per month, and that they live in a high cost area and have a BAH of $2000 per month.  The servicemember's total income is $4500 per month.

When this servicemember is looking for a place to live, how should they figure out what they can afford?  Should they just say, "Oh, BAH is $2000 per month, so I should spend that."  NO. no no no no no no.  NO!

"But Kate," I can hear you saying, "That's their allowance for housing."

Yes, it is.  But you don't have to spend it on housing, and you might not be able to afford to spend it on housing.  Or, you may want or need to spend more.  It all depends on your overall financial picture.

Let's, for example, imagine the life of the Fancy Car Family.  The Fancy Car Family has no kids, no pets, two fancy car loans at $550 and $620 per month, some credit card debt with minimum payments of $300 per month, a few student loans with payments of $200 per month, and they're going to school at a cost of $300 per month.  Those fancy cars come with insurance of $300 per month, plus $300 per month in gas.  The Fancy Car Family is already committed to $2570 per month in payments (we won't even go into that here) before you get to rent, utilities, and other housing expenses.  That leaves them $1930 per month for everything else.  Should they tell their realtor that they can afford $1500 per month for a place to live?  No, because they can't.  There'd be hardly money left for food, or clothes, or entertainment, or haircuts, or savings, or anything else.  If they choose an apartment with $1500 rent, they'll end up putting more on their credit cards and getting further in to debt.

However, let's look at a totally opposite picture:  Dull Car Family.  Dull Car Family has one child, and a cat.  They don't have any car payments or credit card debt.  They do have student loans with $200 payments, and they are going to school at a cost of $300 per month.  Their old cars have a monthly insurance cost of $150, plus $150 in gas each month.  The Dull Car Family has monthly obligations of $800 per month, leaving them $3700 per month.  Should Dull Car Family choose a $1500 house?  That depends, but it is their choice and they could afford it.  Maybe they don't want to because they'd rather pay off their student loans or save for a new car.  Or maybe they do want to spend $1500 or $1700 per month for housing to be in the best school district or to have a smaller commute.  Basically, Dull Car Family has the luxury of choosing what they want to do with their money without risking their financial futures.

I hope that I have convinced you that BAH is not the amount that you can or should spend on your housing costs.  It is part of your overall compensation, and your overall costs need to fit within your overall compensation.  It doesn't matter what the Department of Defense calls that compensation.

And I'm sorry for picking on the cars.  There are a couple of ridiculously expensive cars on our base, and I wonder how people afford them.  It's my little rant.  If you have a fabulous car, and you can afford it, please enjoy!

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