Tips for Living Within Your BAH

Budgeting. How many of us have broken our budget before? And even bigger question would be, how many of us bother to set a budget?

When calculated correctly, a budget offers financial freedom and the peace of mind that you’re spending money that is accounted for. As it's one of the larger categories to factor, budgeting for housing expenses is a good place to start. And as military families who PCS frequently, the cost of housing is always fluctuating, which means that it requires constant re-evaluation. A significant component for a military member's budget is The Basic Housing Allowance.

“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 and quite calculated. The DOD looks at over 300 military housing areas across the U.S., pulls rental data, and takes the average cost of utilities for the area into consideration.

But here’s what you might not realize. 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.

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How to Live Within Your BAH

Start With the Basics

First, what does living within your BAH mean to you? Your Basic Housing Allowance isn’t your budget. You create your budget. So, how far do you want your BAH 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? What about groceries and gas? 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.

On the flip side, are you okay with the allowance covering just the monthly rental or mortgage payment and pulling money from your basic pay to cover utilities and other expenses?

There are no right or wrong answers here. Everyone is different. We all have personal goals and live in different places. On top of that, your answer today might not be the same answer you give in three years. Because, what might’ve worked for you in, say, Nebraska, might not work in California. Your needs and budget strategy will fluctuate and evolve as you need them to. And that’s okay!

The key to figuring it out? Look at your income, the cost of living, debt, and financial goals like retirement, investments, and savings. I could go on and on about budgeting for investments, but we’ll save that for another day.

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You might’ve heard of the 50/20/30 rule. The 50/20/30 is a budgetary rule stating that you should not exceed 50% of your take-home pay on needs. Everything you need to live, like your home mortage/rent, utilities, groceries, gas, car payments, and insurance, should all be covered by 50% of your income.

30% is devoted to your wants. Streaming subscriptions, eating out, vacations, shopping, etc. should not exceed 30% of your take-home pay.

The 20% pertains to savings. You should set aside 20% of your income for your emergency fund, retirement, and additional investments you’re pursuing.

There’s no cut-and-dried budgeting rule here—it comes down to the individual household.

Some people have mountains of debt and a desperate need to save and might try to spend below the 50% for needs and increase the 20% for savings. The rule can serve as a helpful guideline, but it’s crucial to be flexible when necessary.

Start here:

Run the Numbers

Determining how much you should spend on housing is one of the hardest things to do when moving to a new duty station, isn’t it? All of a sudden, the pressure between wanting to save and wanting a home with all the bells and whistles come head to head, declaring war in your mind—or is that just me?

Let’s look at all the variables.

1. How much is your BAH?

How much are you working with here? While it’s not the be-all, end-all of your budget, your BAH sets a pretty good foundation to build from. Check 2023 BAH rates here.

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2. How much are utilities?

The average cost of utilities in the U.S. is between $538.03 to $613.03. Crazy, right? Once upon a time, we all budgeted about $100 a month for utilities. Now, experts say to expect to pay about $290.79 for essential utilities (not including phone and extras like streaming services) a month. But this number really boils down to where you live.

The World Population Review provides helpful insight into the cost of living index across the U.S.:

Hawaii rings the bell at an overall 193.3 cost of living index. Utilities sit at 164.2, groceries are 152.9, and the average cost of a single-family home is $730,511. But don’t worry, Hawaii has the highest cost of living index in the U.S., so nearly anywhere else you live should be a little easier on your pocket. Mississippi sits on the other end of the spectrum with an 83.3 cost of living index. Utilities are 90.4, groceries are 92.2, and the average cost of a single-family home is $140,818.

Texas is 92.1, North Carolina is 95.7, and California is 142.2. But again, the cost of living depends on the region in which you live.

Want to stretch your dollar? 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 all your electronics when you’re not using them.
Invest in solar panels for your house.
Replace your furnace’s air filter four times a year (every three months).

3. Where do you want to live in proximity to the base?

Proximity to the your military installation is everything, especially when you're stationed in a major city like Washington, D.C., or San Diego. The cost of being close to base is astronomically higher than living somewhere out of the main metropolitan area. Take Camp Pendleton, for example. It’s not even located in San Diego (40 miles north) and has a wide range of housing prices.

Oceanside, right outside the main gate, has a median house value of $740K while Temecula, a few miles northeast (and away from the coastline), is $667K. While location is a huge selling point when looking for a home, so are the amenities. Central air conditioning is an expected amenity in Temecula and nearly every home has it. However, homes in Oceanside are a hit or miss. The key takeaway: look carefully at listings!

In cases like this, you have to determine if living a couple of miles from the base or getting a potentially larger house and more amenities is a higher priority to you.

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Pro tip: Take a look at gas prices to make sure that you’re saving money living further from the base rather than redirecting it to another expense.

4. Which amenities are must-haves?

The last thing you have to budget for is amenities. Start with the big things like the type of property (condo, apartment, single-family home) that you want or need. Then move down to the number of bedrooms and bathrooms that you need to be comfortable. Lastly, look at the details. Everything has a price. If a fenced-in yard, pool, fitness center, proximity to great schools, and a two-car garage are critical to you, that helps narrow your budget and your search. While some perks may fit within your budget, others will have to go—this is typically the step where your financial planning is tested!

Fitting everything you want and need into a reasonable budget that reflects your financial goals for the future is easier said than done, right? On paper, it’s easy. But when it comes time to pick and choose the details, it gets complicated. Just remember, when done correctly, a good budget can help relieve financial stress, making those sacrifices here and there feel less like sacrifices and more like a good investment.

Want to get your finances in order before you buy a home? Download our free resource!

Author

Danielle Keech

Danielle Keech is a writer and content creator for MilitaryByOwner Advertising. She writes on military life topics, highlights clients’ open houses on social media, and manages the Military PCS Facebook group. She especially enjoys covering financial topics and helping military families exercise financial responsibility and plan for the future. Danielle has been a Marine Corps spouse for ten years (and counting!) and is a momma to four littles and one fur baby. She and her pilot spouse have lived in Virginia, Florida, Texas, California, Hawaii, and, most recently, Okinawa, Japan. And yes, you guessed it, Hawaii is her favorite duty station to date! Find MilitaryByOwner's Millitary PCS group here.