Do Not Base Housing Costs on BAH Rates

Two recent comments have me thinking about Basic Allowance for Housing (BAH) and actual housing costs.  In one comment, a person wanted to know the BAH rate for their new location so that they could, “tell the realtor.”  In the other comment, a servicemember bought a house “based on the BAH rate.”  This concerns me.

BAH is an amazing benefit of military service, and it is certainly part of a servicemember’s overall compensation.  Sometimes, it is a very large part of a servicemember’s overall compensation.  However, you have to consider BAH as part of your overall financial picture, not as a separate figure.

What do I mean?  Let’s take a hypothetical young married couple.  I’m going to completely make up these numbers, so don’t yell at me.  I’m trying to keep the math simple.  Let’s say that the servicemember’s base pay and BAS equal $2500 per month, and that they live in a high cost area and have a BAH of $2000 per month.  The servicemember’s total income is $4500 per month.

When this servicemember is looking for a place to live, how should they figure out what they can afford?  Should they just say, “Oh, BAH is $2000 per month, so I should spend that.”  NO. no no no no no no.  NO!

“But Kate,” I can hear you saying, “That’s their allowance for housing.”

Yes, it is.  But you don’t have to spend it on housing, and you might not be able to afford to spend it on housing.  Or, you may want or need to spend more.  It all depends on your overall financial picture.

Let’s, for example, imagine the life of the Fancy Car Family.  The Fancy Car Family has no kids, no pets, two fancy car loans at $550 and $620 per month, some credit card debt with minimum payments of $300 per month, a few student loans with payments of $200 per month, and they’re going to school at a cost of $300 per month.  Those fancy cars come with insurance of $300 per month, plus $300 per month in gas.  The Fancy Car Family is already committed to $2570 per month in payments (we won’t even go into that here) before you get to rent, utilities, and other housing expenses.  That leaves them $1930 per month for everything else.  Should they tell their realtor that they can afford $1500 per month for a place to live?  No, because they can’t.  There’d be hardly money left for food, or clothes, or entertainment, or haircuts, or savings, or anything else.  If they choose an apartment with $1500 rent, they’ll end up putting more on their credit cards and getting further in to debt.

However, let’s look at a totally opposite picture:  Dull Car Family.  Dull Car Family has one child, and a cat.  They don’t have any car payments or credit card debt.  They do have student loans with $200 payments, and they are going to school at a cost of $300 per month.  Their old cars have a monthly insurance cost of $150, plus $150 in gas each month.  The Dull Car Family has monthly obligations of $800 per month, leaving them $3700 per month.  Should Dull Car Family choose a $1500 house?  That depends, but it is their choice and they could afford it.  Maybe they don’t want to because they’d rather pay off their student loans or save for a new car.  Or maybe they do want to spend $1500 or $1700 per month for housing to be in the best school district or to have a smaller commute.  Basically, Dull Car Family has the luxury of choosing what they want to do with their money without risking their financial futures.

I hope that I have convinced you that BAH is not the amount that you can or should spend on your housing costs.  It is part of your overall compensation, and your overall costs need to fit within your overall compensation.  It doesn’t matter what the Department of Defense calls that compensation.

And I’m sorry for picking on the cars.  There are a couple of ridiculously expensive cars on our base, and I wonder how people afford them.  It’s my little rant.  If you have a fabulous car, and you can afford it, please enjoy!

About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.
  • Carly

    The debt ceiling expires tomorrow. If it’s not raised, do we or do we not get paid on the 15th?

    • Kate

      I *know* that I replied to you, and I know that I saw the reply. I have no idea where it went. Anyway, Carly, that is a very good question. While we have reached the debt ceiling extension date, we are not at the limit yet. Treasury Secretary Lew anticipates it will be nearer to the end of February, and Congress is actively discussing this issue. The 15th should be good to go, I’d be much more worried about the February end of month pay due on 28 February. I’ll let you know when I have actual information.

  • Marilyn

    When considering renting one needs to include utilities with their BAH. When you live on base BAH is suppose to include rent, utilities, and $10,000 in renters insurance. However the government started charging for some utilities. They are not using the proper baseline for older homes. Sometimes living off of base is better especially if you can find a place that also includes utilities and under your BAH..

  • Don Campas

    I pay 2112.00 a month to live on base. That is my BAH. I could easily find something way under off base. It comes with convienance living on base and the little things add up ie gas travel etc. I dont count the commissary ….its a ripoff anyway. Pure convienance for me….thats why I live on base. When I get out I am free and clear…no house to sell

    • Philip

      Why do you consider the commissary such a rip-off? I just retired after 29 yrs and after having lived many places the commissary on a daily basis is a good deal. As a retiree living “on the economy” I still find that my average food budget goes much further when shopping on post. Just my 2 cents.

      • Walter Stolpa

        My wife and I do comparison shopping at the commissary at FE Warren vs retailers and find that there are some bargains to be had. Unfortunately we find better savings on most items at WalMart. The sales tax savings are negated by the surcharge. I agree with Don that it is not such a benefit as some perceive. Convenience would be the only reason we would shop there but we live 60 miles away.

  • Flossin

    Ref ridiculous cars. You know you are on a military base when you see a SSG driving a Range Rover on 24 inch chrome wheels. Impeccable decision making for certain! I mean if you aren’t the coolest dude who pulls up to formation what is there to look forward to?

    • Philip

      It’s a never ending cycle. Some soldiers will return from deployments and can’t wait to get into debt based on what they now have in the bank. Some soldiers are smart and pay off previous debt. Some are smart and put a chunk away.

  • USAFDrew
  • Rob

    Great job Kate! If only more people listened to you.

    Housing and cars are usually the biggest expenses for young service members. Biting off too much usually gets them into never-ending debt.

  • This is why the UK is a great place; the OHA they give you is the exact amount of your rent and capped. For an E-5, the cap is 1,150 British pounds. If you rent a house that’s 850 pounds, that’s how much they give you. You don’t bank anything. So really, if you’re allowed 1,150, it makes sense to find a place that’s 1,150. Theoretically speaking, however, since landlords can raise the rent at any time, at which point you’re screwed since they won’t give you any more than that, although that’s rare around the bases since the landlords want us to move in since they can overcharge and know for a fact we can pay them without a fuss.

  • Ben
  • Joseph