When calculated correctly, a budget offers financial freedom and the peace of mind that you’re spending money that’s already accounted for.
Budgeting for housing expenses is a great place to start, as it's one of the more significant categories. For military families who PCS frequently, the cost of housing fluctuates and needs to be re-evaluated with each move. A substantial component of a military member's budget is the Basic Housing Allowance.
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Understanding BAH Rates
“The Basic Allowance for Housing (BAH) is a U.S.-based allowance prescribed by geographic duty location, pay grade, and dependency status. It provides uniformed Service members equitable housing compensation based on housing costs in local civilian housing markets within the United States when government quarters are not provided.” — Defense Travel Management Office
How the government calculates your BAH isn’t random; it's intentional. The War Department (DOW) examines over 300 military housing areas across the US, pulls rental data, and considers the average cost of utilities for the area.
Many service members may not realize that the BAH isn’t intended to cover 100% of your housing expenses—95% is more accurate. That leaves the other 5% coming from the remainder of your paycheck. Is 5% a lot? As far as percentages are concerned, no. But depending on where you live, that 5% can equate to several hundred dollars.
Start with the Basics of Budgeting
You first have to decide what living within your BAH means to you. Your Basic Housing Allowance isn’t your budget; you create your budget. It’s up to you to decide how far you want your military housing allowance to stretch.
Do you want your living expenses, rent/mortgage, and utilities (electric, gas, water, sewage, and internet/cable) to fall within the allotted BAH? While your housing allowance doesn't factor in groceries and gas (unless you qualify for COLA or Basic Needs Allowance), some military families like to keep all cost-of-living expenses under the BAH umbrella when possible. However, completely staying within your BAH appears to be more challenging in recent years.
On the other end of the spectrum, are you okay with the allowance covering only the monthly rental or mortgage payment and pulling money from your basic pay to cover utilities and other expenses?
Both budgeting methods are acceptable, and service members have their own personal goals. That said, while some duty stations allow room to make these choices, others are very expensive and may not leave room for you to live under your military housing allowance. What worked for you in Nebraska might not work in California. Your needs and budget strategy will fluctuate and evolve as needed.
The key to figuring it out is to look closely at your income, the cost of living, and debt. Also consider financial goals like retirement, investments, and savings.
The 50/20/30 Rule
You might’ve heard of the 50/20/30 rule. The 50/20/30 budgetary rule states that you should not exceed 50% of your take-home pay on needs. Everything you need to live, like your home mortgage/rent, utilities, groceries, gas, car payments, and insurance, should all be covered by 50% of your income.
The 30% is devoted to your wants. Streaming subscriptions, eating out, vacations, and shopping shouldn't exceed 30% of your take-home pay.
The 20% pertains to savings. It's recommended to set aside 20% of your income for emergency funds, retirement, and any additional investments.
There’s no set budgeting rule here; it comes down to the individual household. Some people have mountains of debt and a need to save. They might try to spend below 50% on needs and increase the 20% for savings. The rule can serve as a helpful guideline, but it’s crucial to be flexible when necessary.
However, with increasing costs, following this budgetary model can require greater sacrifices than it did even a few years ago.
Run the Numbers for Your Housing Budget
Determining how much you should spend on housing is one of the challenges when moving to a new duty station. Saving money while prioritizing desired amenities can be a fine balance. Following are some steps to help calculate a realistic housing budget.
1. How much is your BAH?
Understand how much you're working with. While it shouldn't be the deciding point of your budget, your BAH provides a decent foundation. Use this military BAH calculator to check current BAH rates.
2. How much are utilities?
Years ago, everyone budgeted about $100 a month for utilities. Now, experts say to expect to pay between $300 and $500 for essential utilities (not including phone and extras like streaming services) a month. This number varies depending on where you live.
The World Population Review provides helpful insight into the cost-of-living index across the US:
Hawaii rings the bell at an overall 185 cost-of-living index. Utilities are 204.4, groceries are 133.5, and housing costs are 304.2. While Hawaii has the highest cost-of-living index in the US, nearly anywhere else you live should be a little easier on your pocket. Oklahoma sits on the other end of the spectrum with an 86 cost-of-living index. Utilities are 95.4, groceries are 95.3, and housing costs are 70.7.
Other sample cost of living indexes across the country: Texas is 92.1, North Carolina is 97.8, and California is 142.3.
Save on utilities with these money-saving tips:
- Use energy-efficient light bulbs
- Get a smart thermostat
- Hang insulated curtains
- Replace your water heater if it’s more than ten years old
- Unplug electronics when you’re not using them
- Invest in solar panels for your house
- Replace your furnace’s air filter quarterly
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3. Where do you want to live in proximity to the base?
Proximity to the military installation is important when stationed in a major city like Washington, DC, or San Diego. The cost of being close to the base is astronomically higher than living somewhere out of the main metropolitan area. For example, Camp Pendleton is located outside of San Diego, and it has a wide range of housing prices.
Outside the main gate, Oceanside has a median house value of $835,000, while Temecula, a few miles northeast (and away from the coastline), has a median value of $757,167. Location is a huge selling point when looking for a home, but so are the amenities. Central air conditioning is expected in Temecula. However, homes in Oceanside are a hit or miss.
Look carefully at listings when deciding what's important for you and your family. In cases like this, determine which one is a higher priority: living a few miles from the base with a shorter commute or getting a potentially larger house with more amenities.
Pro tip: Look at gas prices to ensure you'll save money living farther from the base rather than redirecting it to another expense.
4. What are your must-haves in a home?
The last thing to budget for is amenities. Start with the big priorities, like the type of property (condo, apartment, single-family home). Next, move down to the number of bedrooms and bathrooms you need to be comfortable. Finally, look at the details.
Every amenity comes with a price tag. If features like a fenced-in yard, a pool, a fitness center, a two-car garage, or proximity to great schools are all critical to you, then identifying them will help refine both your budget and your search. Some perks will fit within your budget, while others do not. Deciding which extras to pass on is a key part of financial planning.
Fitting everything you want and need into a budget that accurately reflects your financial goals is easier said than done. A military BAH calculator can help you determine where to start. When budgeting for a home is done correctly, making small sacrifices will be a good investment for your financial future.
Need help getting your finances in order before you buy a home? Download our free home buying guide below.
