Most of us have to think about how to make the most of our money, and how to plan our finances to make things work in the best way.
My little posse of military money bloggers has been discussing the allotment changes, which has led to general conversations about allotments. Rob Aeschbach, Navy-Marine Corps Relief Society volunteer extraordinaire and Certified Financial Planner® for military families, brought up one very good reason that allotments can be bad: they limit your flexibility.
When money is tight, flexibility is a good thing. While I don’t ever advocate not paying your bills, sometimes you have to prioritize. Financial experts alway recommend that you prioritize your payments when you don’t have enough to pay everything: essentials (food & shelter, sometimes transportation) first, big consequence items (mortgage, insurance, car payment) second, and then lower-consequence items (credit cards, personal loans) last.
If you’ve set up allotments to pay for your furniture, your TV, and your engagement ring, then that money is coming out of your paycheck before it even gets to you. That’s great when things are going well, as it keeps your finances simple and makes sure that those bills get paid on time. However, it is an inflexible system. Allotment changes take time. When you’ve had a surprise expense, you often don’t have time to wait for an allotment change. If you need the car to go to work, it needs to be fixed now, not in a month when the allotment has stopped being taken out of your account.
Allotments can be a good way to manage your money, but you have to be aware of the downsides. Inflexibility is probably the biggest problem with allotments. If you are going to use allotments to pay non-essential bills, be sure that you have adequate disposable income and savings to get you through life’s curveballs. You don’t want to be scrounging to feed your children while your sofa bill gets paid on time.