Budgeting Basics for Service Members: A Guide for Parents
Budgeting is an essential skill for anyone looking to secure their financial future. As a parent, you are responsible for imparting these essential skills to your new service member. But since military life is significantly different from civilian life, your new service member will need more than just regular civilian budgeting tips. In this article, we will share insights from a conversation with Melissa, an officer in the army, on how to best budget in the military.
Budget Like A Military Member
"One of the biggest mistakes new service members make is approaching their finances the same way they did as civilians," Melissa pointed out during our conversation.
"Making the shift from budgeting like a civilian to budgeting like a member of the military can be a bit tricky sometimes," Melissa explained. "Unlike a traditional paycheck, military pay comes in multiple parts—base pay, allowances, and sometimes special pay. Understanding how each piece fits into your overall financial picture is key to making the most of your income."
Remind your service member that their income isn’t just their base pay. To build financial stability, they would need to budget with all aspects of their pay in mind.
Separate Fixed from Variable Income
“Not every aspect of military pay is fixed," Melissa explained. "Outside of your base pay, everything else like your allowances and special pay can vary depending on where you are stationed and what additional compensation, like deployment pay, hazard pay, or special duty pay, you qualify for.”
These variable income sources can create financial challenges if not managed wisely. If your service member relies on these fluctuating allowances or temporary special pay to cover fixed expenses, they may find themselves struggling financially when those payments decrease or stop coming in altogether. Encourage your service member to budget based on their stable income—primarily their base pay—rather than the highest paycheck they’ve ever received. This ensures they can cover essential expenses even when special pay or allowances fluctuate. When these additional allowances do come, they should be considered extra pay, not a part of the norm.
Encourage Debt Management
Debt can seriously damage anyone’s financial stability. Being in the military doesn’t make your service member an exception. If your service member is in debt of any kind, no matter how small, encourage them to create a debt management plan as soon as possible and help take them through the process.
Make Provisions for Savings
Making sure to always save is a financial decision no service member will ever regret making. It is what we recommend every new service member does with all that extra disposable income after receiving the additional benefits and special pay.
Encourage your new service member to save as much as they can, especially when special pay and benefits increase their overall finances. They should take advantage of the Thrift Savings Plan (TSP) and other military savings and investment programs to make sure they are constantly putting some money aside for their future. The earlier they start saving, the more they’ll benefit later. Teach them to increase their savings with every pay raise.
Stay Accountable
Budgeting is easier with support. And who better to support your new service member than you, their parents? Encourage them to stay accountable by not just setting budgets, managing debts, and creating a savings plan, but also ensuring they follow up with each decision, track their progress, and make regular budget reviews. Make sure to regularly take part in these reviews to help keep them accountable and on the right path to financial success.
Conclusion
Budgeting might seem daunting at first for a new service member, but with your guidance, your son or daughter can develop strong financial habits that will set them up for long-term success. By helping them understand their unique military pay structure, manage debt wisely, prioritize savings, and stay accountable, you can ensure they make the most of their hard-earned income. All it takes is a little time and guidance from your end, and your service member will become one step closer to financial security.
Useful Resources
Thrift Savings Plan (TSP) – A retirement savings plan for service members with tax advantages. www.tsp.gov
Military OneSource Financial Counseling – Free financial counseling and resources for military families. www.militaryonesource.mil
Defense Finance and Accounting Service (DFAS) – Information on military pay, allowances, and benefits. www.dfas.mil
