Military Saves Week: Day 5, Save the Extra!

by johnnyc2id on Mar 1, 2019

Military Saves Week, military finance, military retirement, Thrift Savings Plan, IRA, Roth IRA, blended retirement system, Debt, Taxes

February 25th to March 2nd is Military Saves Week, designed to help promote personal savings and reducing debt.  Each day of the week will have a special focus and today’s focus is saving the extra!

Day 1’s Blog, Save With a Plan!

Day 2’s Blog, Save Automatically!

Day 3's Blog, Save For the Unexpected!

Day 4’s Blog, Save For Retirement!

Extra?  Who the heck has extra money?  Well, maybe you do, you just might have to change the way you look at some expected and unexpected increases in your income.  Throughout the year, you may see some one-time or on-going changes in your income, to include:

  • Pay Raise – Service members have received an average of a 2.5% increase in pay per year from 2004 to 2018.  You don’t have to increase your expenses just because you got a pay raise!  Before you start spending your raise, think about saving a portion.
  • Bonuses – Re-enlistment can often come with a nice bonus for extending your service obligation.
  • Special and Incentive Pay – The military will often pay an additional amount as special and incentive pay if you qualify.  These amounts can be your “extra pay” that you use for saving, while using your base pay and BAH to cover your day to day living expenses.  Some of the more popular special and incentive pays include Hazardous Duty Pay, Parachute Duty Pay, Foreign Language Pay, and Medical Specialist Pay.  See the full list of Special and Incentive Pay categories here. 
  • Continuation Pay – Are you in the Blended Retirement System?  The BRS offers continuation pay for those service members eligible; usually around your 12th year of service in exchange for agreeing to serve an additional four years.
  • Tax Refund – April 15th is around the corner.  If you are getting a refund this year, think about committing some of this amount to savings!

Of course, if you do not qualify for any of these, you can create your own “extra” by reducing expenses versus increasing income.  

Now that you have identified some of the “extra,” where should it go?  Here are my top recommendations for where to save the extra:

  • High interest debt – Think balances on credit cards.   While this is not technically savings, paying off high interest debt as soon as possible can keep you from getting further in debt as the interest accumulates.  Once the debt is paid off, you can then redirect the money spent on the interest into your savings and towards your financial goals.
  • Emergency Fund – Saving for the unexpected was the focus of Wednesday of Military Saves Week.  Bottom line, make sure your finances are resilient by building an emergency fund.  Try to save 3- to 6-months’ worth of expenses and use an on-line savings bank to keep the money earning interest for you!
  • Retirement – Are you maxing out your TSP?  Chances are that you are not.  If you are a BRS participant, at the least, make sure you are contributing 5% to take advantage of the full government contributions.  One great tip is to increase your deferral percentage going into the TSP by the same amount of your pay increase.  This will have you regularly increasing the amount you put towards retirement.  If you do not have a TSP account (and if you do as well) you can still save for retirement by contributing to an IRA or a Roth IRA.
  • Your Financial Goals!! – What else do you want to achieve in your life from a financial standpoint?  A new car, education, vacation, whatever it is, make sure you define it to yourself.  Have a financial goal in place and be purposeful about contributing to that goal.  You can do this through a savings account, CD, brokerage account.  The investment/savings vehicle you choose should be matched up to what you are saving for.  Talk to an on-post financial counselor who can help you create a savings goal and match it up to the correct savings vehicle for you!

Don’t be thrown off by the word extra and think it doesn’t apply to you.  Instead, take a look at where your current finances are now, and when you can spot areas where you can increase your income or decrease your expenses, have a plan in place on where to put that money, so it can best help you prepare for a secure and satisfying financial future.