Basic Allowance for Housing (BAH) is a significant benefit for military service members, designed to contribute to the cost of housing and housing-related expenses when living off base.
While it might seem logical to spend the entire BAH rate on rent or a mortgage, that’s not always the best approach. There are many reasons why you may want to spend more or less than BAH on your housing. Military families should look at their overall financial picture together with their wants and needs to determine their housing budget.
An Overview of BAH
Each BAH rate is calculated based on the cost of renting a home for your location, pay grade, and dependency status. The BAH formula uses information about the cost of housing and utilities at each location and applies them to a standards chart that includes certain sizes of housing based on pay grade. BAH does not consider the size of your family or any other specific needs that you might have, such as a first-floor bedroom and bath or an extra bedroom for grandmom.
Despite being based on your situation, BAH is not a housing budget. Service members are free to spend more or less than their BAH rate on housing. If they spend more, then they’ll need to cover the additional costs out of pocket. If they spend less than BAH on their housing expenses, they can use the leftover money for other purposes.
In this way, BAH becomes part of the larger financial picture. Therefore, decisions about housing spending should be made when considering the full financial picture. This should include total income, debt, other monthly liabilities, financial goals, and family-specific preferences when deciding how much to spend on housing.
Spending More or Less Than Your BAH: What to Know
For example, a service member that wants to use public transportation may choose a more expensive apartment, with that cost offset by lower automobile costs. A childless couple may choose to live in a smaller home and use the extra money to bolster their retirement accounts. A dual income family using an au pair for childcare may prioritize a larger home even though it costs more. Or a service member living separate from their family may choose a cheap basement apartment to help support their other household. Every situation is unique.
It’s important to consider all the costs of housing, not just rent or mortgage payments. This includes insurance, furnishings, utilities, and maintenance or repairs. Those extra expenses can really add up, especially if you own your home. You may also need to consider extra transportation costs if you choose to live further from work to decrease costs or get a certain feature that’s important to you.
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The primary reasons why service members may choose to spend more than BAH on their housing include the desire to live in a larger home, access to particular schools, proximity to work, or a more desirable neighborhood. This choice can be funded with additional income or by decreasing spending in other areas.
The primary reasons why service members may choose to spend less than BAH on their housing include a desire to pay down debt, increased financial flexibility, or increased savings for other goals. This can happen by choosing a smaller home, choosing a less desirable location, or an older property. Since BAH is paid regardless of your actual costs, this will leave more money in your pocket. You can use this money for other priorities, such as education, travel, or savings.
The Full Housing Picture: Beyond Rent or Mortgage Payments
So, what if BAH won’t cover your housing costs? Then you need to look carefully at your wants and needs. Consider your thoughts about location, size, price, schools, type of housing, yard, garage, amenities, and updates.
What is your highest priority? What can you manage without? In some highly competitive areas, you may only be able to fulfill one of your wants. Knowing what you truly value makes it easier to decide that your kids can share a bedroom, you don’t actually need a garage, or a townhouse might be fine.
Learn more: Tips for Living Within Your BAH.
Service members should carefully assess whether spending their full BAH rate on their total housing expenses aligns with their overall financial goals. The key is to make a conscious decision based on individual circumstances rather than defaulting to spending the full BAH simply because that’s the amount they receive.
