Understanding Military Pay And How To Start Saving

5/30/2017

For anyone new to the Military and wanting to understand what goes into your paycheck and how you can start saving money for your future, it's smart to think ahead. The military runs like clockwork with your pay being deposited on the 1^st and 15^th of each month. But what are all the parts that go into your final take home number?

 

Basic Pay Slip Breakdown.

What goes in…

First is your Base pay. This is set by your rank and how long you've been in the military.

Then there is BAS or Basic Allowance for Subsistence, this is essentially for food. If you live in the dorms, like Frank, most of this will be deducted right back out of your pay because you have access to the mess hall and you can eat all you like there.

The BAH is for Basic Allowance for Housing. The military provides free or subsidized housing for all its members. The amount of BAH is dependent upon your rank, location and the number of dependents you have.  Once again, if you live on base, this will be deducted back out of your pay check but you'll have accommodation provided.

The Overseas COLA or Cost of Living Allowance is a non-taxable allowance designed to offset the higher overseas prices of non-housing goods and services. Overseas COLA is not a fixed amount and is dependent on the local currency and cost of living in your current country. You will only receive COLA if you are outside the US.

So that's a basic overview of what goes in, but what about the deductions?

Deductions from your pay check include taxes, Social security and Medicare but will also include other items.

AFRH stands for Armed Forces Retirement Home. These are funded primarily by service members themselves with an automatic, non-voluntary deduction that is taken from all service members' paychecks. The AFRH amount is currently at 50 cents per month.

You will also have the opportunity to contribute to your retirement via TSP or Thrift Savings Plan.  This is a Federal Government-sponsored retirement savings and investment plan. These deductions will appear as TSP on your pay slip.

How should you go about budgeting and save what's left?

First, you should create a budget using an app or a spreadsheet. You can learn more about creating a budget by clicking the link here. Remember, when you create a budget you have to include all your expenses even the small ones for your budget be effective.  If you need a hand developing a budget, then budget counseling is a great first step. Contact Navicore Solutions for compassionate credit counseling and budgeting guidance.

So once you have a budget, what else can you do to maximize your savings?

You should “Pay Yourself First”. This means put some money away for retirement and an emergency fund first and spend what's left. Automating your savings and retirement contributions is an easy way to get this done. Have a separate bank account for your emergency fund. You won't know when your next emergency is coming but, you can be certain that it's coming. You'll be happy for the immediate funds to cover it.

Make sure your lifestyle fits what's left of your budget. For example, if you want to buy a car, you should choose one that's “not too much car for your budget”. Remember, you can't use a car while on basic training and you may not be able to take it with you if you are transferred or deployed. Buy a smaller, more economical car that you can easily sell if you need to.

Bonus Tip:

Don't ignore your credit report. Having a good credit score will help you determine what loans you will qualify for and the interest rate you will pay. Get your credit report once a year from one of the 3 major credit bureaus. When you want to buy a house or get a loan you'll get a better interest rate if your credit is in good shape. Check out the infographic here for everything you need to know about your credit score and how it's determined.

By taking care of your finances right from the start, you will be building a solid financial future for yourself and your family.

 

 

 

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