Allotments are a nifty feature of the military pay system, but they can be confusing, especially when you start and stop the allotment. An allotment is similar to a payroll deduction, except that the money is deducted over two paychecks and then disbursed in one lump each month. While allotments can be a great way to organize your finances, you have to understand how they work or life might be complicated. You also often need to have a little extra money to get the allotment started. (And thank you to Rob Aeschbach, who unwittingly helped me figure out how to explain this in a way that is understandable.)
Service members receive pay and allowances on a monthly basis. The mid-month pay is an advance on the total monthly pay, calculated by estimating the total monthly pay anticipated for the month and then dividing in half. At the end of the month, the actual total pay is calculated and the end-of-month pay is the actual total monthly pay minus the amount that was advanced in the mid-month pay.
When you set up an allotment, the process begins with the next full month of pay, which means that allotments set up after the 7th or so with not begin until the next month. Once the allotment starts, it is calculated on the full month. However, since the full amount is taken out of the full month’s pay, and the mid-month pay is calculated based upon the full month’s pay, the result is that the mid-month pay will be reduced by about half of the allotment.
At the end of the month, the entire amount of the allotment is sent to the person to whom it is being paid.
When starting a new allotment, you sometimes will have to pay up front for the first month’s payment because the payment will not be disbursed until the end of the month. For example, let’s say you move into a house on 1 August, and you set up an allotment to pay your rent. You will have to pay August’s rent up-front, and then your allotment will be deducted from the mid-month and end-of-month pays to be disbursed at the end of August. The amount disbursed at the end of August will then pay for September’s rent. The good news is that when the lease term ends, you cancel your allotment just as you make your last month’s rent payment.
Questions, comments, odd things that have happened to you? Let me know in the comments!