Planning for 2009

One of the (many) unique things about being in the military is that you get regular pay increases every January, when the new pay tables are implemented.  This gives you the opportunity to plan your spending for the following year.  New housing allowances and BAS rates were recently posted, so I took a few minutes to look at my family's financial plans for 2009.  If I don't plan ahead, that extra money will slip into our everyday spending instead of working towards our financial goals.

Here's what I did:

I started by getting a copy of my husband's last LES.  These can be printed at the MyPay website. Then I made a note of the new, updated amounts.  (Thanks to rate protection, BAH amounts won't go down even if your areas rate falls.) I did some estimating for changes in taxes, social security and medicare, and figured out what the net change would be.  Then, I thought about what would be the best use for this extra money?  There are three main choices:

• Pay off debt:  This is obviously very important.  Debt reduction should be a very high priority for everyone.  I have a pretty ambitious debt reduction plan and we're meeting our goals so far.
• Save for retirement:  In a perfect world, we would all be maxing out our IRAs and putting a good chunk into TSP each month.  We recently reduced the amount that we're saving for retirement to pay down our debt faster.  This makes me very nervous.
• Build an emergency fund:  Experts say that you should have 3-6 months of expenses in an accessible account.  I used to think that we didn't need that much because military paychecks are pretty secure, but then I started thinking about the unexpected expenses that sometimes come with military life, and I heard a few horror stories of people's paychecks being messed up.  Now I'm thinking that maybe 3-6 months expenses wouldn't be such a bad idea.  So far, we've saved about month's worth of expenses.

For my family, I am putting a chunk away each month into an emergency fund, and I am putting the rest into TSP and IRAs.  We're already paying down our debt pretty fast, and we have a small emergency fund.  We aren't saving as much for retirement as I'd like, so that is my highest priority.  Your family's choices will probably be different, depending on your debt situation, the size of your emergency fund, and your retirement plans.

I've attached an example (I got the LES from Wikipedia):

            

In this case, this Staff Sargeant at McGuire Air Force Base will be earning an additional $119 per month in January, minus a little extra in deductions for taxes.  She could pay that money towards a credit card, put some in her TSP account, put some into a savings account, or some combination thereof.  Her choices will depending on her situation.

What we all need to avoid is letting that extra money disappear into our existing budget.  A yearly increase is a benefit that very few people can count on.  Let's use it to our financial advantage!