By Alecia D. Blair, Military Saves Project Manager/Consultant, AFC® Candidate, FINRA Foundation Fellow
Permanent change of station (PCS) moves, temporary duty (TDY), deployment—all of these major changes are a constant in military life. While a military paycheck is predictable twice a month, these life changes bring significant income volatility and increases or decreases in expenses, which can make your budget a moving target. Here are five solutions to help meet these challenges.
1. Prepare for the Unexpected with Transition and Emergency Funds
The months leading up to and following a PCS move, TDY, or deployment require significant financial adjustment. Give your family time to tweak the family budget by saving now for a:
- Transition fund: Money meant to help pay for unexpected costs associated with changes in your paycheck until you’re reimbursed due to PCS moves, TDY, deployments, etc. In other words: military life! Secure enough money to cover food, lodging, and transportation for one to two weeks, or about $500.
- Emergency fund: Money earmarked to offset urgent, unexpected expenses so they don’t destroy your budget and/or force you into debt. For example, a fender bender could set you back $500, or even $1000, for an auto insurance deductible.
If you’re expecting or have received a tax refund for 2016, consider saving a part of it with SaveYourRefund to build each of these funds and be entered for a chance to win up to $25,000 in cash prizes! For more information, visit saveyourrefund.com.
2. Think Ahead: Changes in Basic Allowance for Housing during a PCS
One of the first things you should compare is the amount of Basic Allowance for Housing (BAH) you receive at your current duty station and the amount you will receive at your new duty station. Is there an increase or decrease? How will this affect your budget? Here are some guidelines when considering housing affordability. Bottom line: Don’t buy too much house, or become “house poor.”
Before you jump to purchase a home using the BAH at your new duty station, remember that your next duty station’s BAH might be significantly lower. BAH is based on location and is not consistent from one duty station to another. If you purchased a home, couldn’t sell it immediately, and/or decided to rent it out after your next PCS movie, would you have to pay out of pocket to cover the mortgage? A difference in your BAH at your next duty station could be financially devastating. Consider this and run the numbers ahead of time. When in doubt, be conservative to keep your housing costs in check.
3. A Tactic for TDY
TDY can be for days, weeks, or months and might require a service member to live in a different location from his or her family. This can mean a significant increase in expense on the family budget (at least temporarily) for food, lodging, and transportation until those costs are reimbursed.
Instead of taking out your credit card (with interest) and using it to pay for these expenses up front, use the money you saved in your transition fund and replenish it as soon as you’ve been reimbursed.
4. The Low Down on Deployments
Deployments to certain locations bring significant financial benefits, including tax-free income and special pays. Increases in pay can tempt the most disciplined soldier and spouse to spend, spend, spend. But remember that deployments aren’t forever (thank goodness!) and all of those special pays and the tax-free income will eventually come to an end.
Before spending additional cash, adjust your monthly budget accordingly and set some savings goals for your family. Talk about this together. If you can, consider saving all special pays towards those goals—paying off debt, setting up emergency and transition funds, saving for a home or new car, or increasing your retirement savings. After all, you lived without all of these special pays before the deployment. Why not continue? Take the Military Saves Pledge to help set these savings goals.
Just as your family needs an adjustment period moving into and out of deployment, your finances will need time to adjust too. Resist the urge to make large purchases until your family budget has adjusted. Once again, a transition or emergency fund can help your family weather income fluctuations with greater resiliency as you start and end a deployment.
If you took advantage of the Savings Deposit Program, this account will close 90 days after your deployment ends. Have a plan for this money as well.
5. Manage Your Money with Confidence
Remember Murphy’s Law: Anything that can go wrong will go wrong. Manage your money with more confidence by imagining all of the scenarios that could happen during your next PCS, TDY, or deployment and build a transition fund and an emergency fund to help cope with these expensive “gotcha moments” that can sink your budget. Set a goal. Make a plan. Save automatically!