You got promoted to the next rank! Congrats! Or maybe you got a longevity increase (When I was a Company Grade Officer, they seemed to come pretty quickly). The bottom line is you have some more "change in your pocket" and you need to figure out what to do with it. This is not something you want to make a hasty decision about because ideally, this extra money should benefit you over the long run to improve your life. Make the most out of your raise with these tips.
Tip #1: Even Military Members Need an Emergency Fund
If you don’t have an emergency fund set up, the pay increase that you just received is a great way to start one. Ideally, you want to have at least 3-6 months of living expenses saved in a very liquid account in case of illness or job loss. Now, many of you may be thinking, you're not too worried about that since you're in the military. I thought that way. Now I think differently. Build up your "war chest" now. You don't know for sure how long you'll be in the military and when you leave, and we all do, having living expenses covered for 6 months makes the job hunt a whole lot less stressful. Having that extra savings in case you need it can be a big load off your mind when you need to make a major repair to a vehicle, your house, have some other unexpected large expense or when you hang up your uniform one last time.
Tip #2: Pay off or Lower Debt
High-interest credit card debt can be an enormous drain on your finances and can become a problem for your security clearance. It can be hard to get ahead with payments when it just seems like you are tackling only the interest accrued each month. Paying off those debts or lowering the balance on those credit cards into something more manageable can be a great way to spend that additional income. Doing this will feel like a weight off your shoulders and allow you to use your money going forward more wisely. To pay off the debt most efficiently, make the extra payments on the accounts with the highest interest rate. Don't worry too much about paying off a mortgage until you have significant liquid assets.
Tip #3: Save for Something for Yourself and Family
Military life is stressful. You need to take some time and spend some money on things and/or events for your family once and awhile. Saving for a goal for you and your family, if you have one, will inspire you to pocket those extra bucks. Saving for something you have dreamed about wanting to do for a long time, like a family trip to Disney (check out their military discounts here), a new car, or even making some major home improvements are all things that you can look forward to saving for with your newly acquired income.
Tip #4: Put the Extra Into the Thrift Savings Plan (TSP)
Maybe not the most fun option, but in the long run this one is sure to benefit you the most. Contributing more to the TSP could reduce your taxes now (if you contribute pre-tax dollars) or provide more tax free income in retirement (if you contribute to Roth TSP). Also, if you are covered by the Blended Retirement System (BRS) and are contributing less than 5% of your new pay amount, you'll not only get tax benefits, you'll get more free money from the military. You aren’t enjoying it in the short term of course, but that will set you up in a beneficial way later in life when you are looking into retirement. You may even be able to retire earlier than you might think!
When you are trying to adjust your finances due to a promotion or longevity pay increase, talk to a financial advisor that might be able to help you lay out some achievable goals for your money.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.