The new year is a popular time to re-evaluate things and make new goals, and finances are a popular subject of these goals. Where many military families get stuck is turning those goals into reality.
As you set up your financial plans for the coming year, use these tips to keep your plans in action.
1) Allocate That Extra Money Automatically
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Military service members will have larger paychecks in 2023, thanks to a 4.6% increase in the military pay chart and the end of the payroll tax deferral repayment. You may also have a larger Basic Allowance for Housing, time-in-grade increase, or promotion to add even more money to your overall pay.
Identify where you want that extra money to go and then set up a system to make it happen without requiring you to do anything each month. Building an emergency fund? Open a separate bank account and set up an allotment or Electronic Funds Transfer to go to that account each month. Paying off debt? Set up that EFT right now. Savings and investments can also be done by EFT or allotment.
I prefer EFTs because they are easier to control, but they do have the potential downside that they happen after the money has entered your bank account. If you’ve miscalculated, and there isn’t enough money, those automatic transfers can cause problems. Allotments are harder to change, but they happen before your pay gets into your hands. Choose which one is better for your specific situation.
If you’re not ready to set up an EFT, come up with another system. Maybe you always pay your bills on the first of the month, and your debt repayment could happen then as part of your regular bill paying. Or you always play basketball on Tuesdays, and you can build the habit of doing a quick funds transfer on your phone as you walk into the gym. Whatever works for you!
Saving up money to buy a home? Take a look at our Home Financing Overview for Military Homebuyers.
2) Plan For The Predictable and Not-So-Predictable
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There are two categories of short-term savings: emergency funds and short-term savings. One common mistake is to confuse or combine the two. Emergency funds are for things that couldn’t reasonably be predicted, like your dog eating a sock or your car being damaged by hail. Short-term savings are for things that can reasonably be predicted, like your dog needing immunizations or your car needing new tires.
An emergency fund is a great tool to cover emergencies, and for times when your short-term savings aren’t enough to cover your immediate need. Most experts recommend you have 3-6 months' living expenses in an emergency fund, but that’s a lot of money. Start with a goal to save $1,000 as quickly as possible, then add to it every month.
Short-term savings are truly a key to financial comfort. There is tremendous peace that comes with knowing that you have the money to pay for a lost retainer, an unexpected trip home, or a new refrigerator. Identify two or three areas where you know you will need money, and set a little bit aside each month. Ideas for short-term savings, sometimes called sinking funds, include:
- Travel
- Uniforms
- Car repairs
- School expenses
- Pet care
- Dental and vision costs
- Home repairs
- Vehicle replacement
- Clothing and shoes
- Children’s activities
- Electronics/tech replacement
- Gifts
- Furniture
- Anything you know you want to spend money on in the next year
Putting money into these savings accounts each month may make your budget feel tight, but that’s okay. You won’t need as much wiggle room when you’re financially prepared for the expenses that happen in life.
3) Make A Place for Fun Money
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Make sure that your monthly spending plan includes a little bit of cash for each adult, and some built-in fun money. It’s hard to stick to a plan that makes you feel deprived.
Having your own cash that doesn’t have to be explained to anyone is important for all the adults in an economic unit. Set aside a regular amount and dole it out just like you’d give an allowance to a child. Decide together what items need to be paid for from the allowance. Will you pay for drive-through lunches, manicures, lottery tickets, or bowling night from your pocket money or is that somewhere else in the spending plan? There’s no right answer except the one that you can agree on.
If it isn’t coming out of a personal allowance, where is fun in the spending plan? We have a monthly amount for eating out, and there is not a plan to let that account build up. I like eating out, and having it in the spending plan makes it okay to splurge a little. Perhaps you like to go to Top Golf or pick up a nice cigar. No judgment—just put it in the plan.
Sticking to your financial plans is the hardest part of the process. Including these three ideas in your financial plans can improve the chances that they succeed. Be sure that you’re automating the steps to your goal, planning for expenses, and budgeting in the fun.
If you do those three things, you’re off to a successful new year with your money!
