Budgeting: how many of us have struggled with sticking to one? Perhaps the bigger question is, how many of us take the time to actually set a budget?
I have a few thoughts on this topic. It was something that was GROSSLY misunderstood, not talked about, and simply ignored by many while I was in the Marine Corps. When done right, a budget gives you not only financial freedom but peace of mind, knowing that every dollar has a purpose. Housing expenses, one of the largest parts of your budget, are a GREAT PLACE TO START. For military families who often face frequent PCS moves, housing costs can vary widely, making regular budgeting essential. One key element of your financial plan as a service member is your Basic Allowance for Housing (BAH).
“The Basic Allowance for Housing (BAH) is a U.S.-based allowance determined by your geographic duty location, pay grade, and dependency status. It compensates uniformed service members based on local civilian housing costs when government housing isn’t provided.”—Defense Travel Management Office
BAH calculations aren’t arbitrary—they’re carefully designed (although I feel there are some installations that could use higher BAH since rents and mortgages are much higher than their BAH rates). The Department of Defense evaluates over 300 military housing areas across the U.S., gathering rental data and factoring in utility costs to ensure fair compensation.
What you may not realize is that BAH isn’t intended to cover 100% of your housing expenses. In fact, it’s designed to cover around 95%, leaving you to pay the remaining 5% out of pocket. While 5% may not seem like much, depending on where you’re stationed, it could still be several hundred dollars.
How to Make BAH Work for You: Start with the Basics
What does living within your BAH mean to you? It’s important to remember that your BAH isn’t your entire budget, you build your budget. The question is, how far do you want your BAH to go?
Do you aim to cover your living expenses, including rent/mortgage and utilities, under your BAH? Or do you prefer to cover just your housing costs with the allowance and use your basic pay for utilities and other needs?
There’s no one-size-fits-all answer. Everyone’s situation is different. Where you live, your personal goals, and even your budgetary preferences will change over time. What worked in Nebraska might not cut it in California. The key is to remain flexible and adapt your strategy as needed.
Start by examining your income, cost of living, debts, and financial goals like saving for retirement or investments. A popular rule of thumb is the 50/20/30 rule for budgeting:
- 50% for Needs: Housing, utilities, groceries, gas, and essential bills.
- 30% for Wants: Discretionary spending like dining out, vacations, and entertainment.
- 20% for Savings: Contributions toward retirement, emergency funds, and investments.
While this is a good framework, it’s important to be flexible. Depending on your situation, you may need to adjust these percentages to better meet your goals.
Run the Numbers: Consider Key Variables
When moving to a new duty station, it’s not always easy to figure out how much you should spend on housing. Should you save more or go for that house with all the amenities? Here are some key factors to consider:
Your BAH: How much are you allotted? BAH will form the base of your housing budget, but remember, it’s just the starting point.
Utility Costs: Utility prices can vary significantly. On average, U.S. households pay between $538.03 and $613.03 per month on utilities. However, the actual cost highly depends on your location.
For example, Hawaii has the highest cost of living in the U.S., with a cost of living index of 193.3, while Mississippi has the lowest at 83.3. Where you live will impact your budget dramatically.
Want to save on utilities? Consider these tips:
- Use energy-efficient light bulbs.
- Invest in a smart thermostat.
- Install insulated curtains.
- Unplug electronics when not in use.
- Consider solar energy options.
- Location and Proximity to Base: Living close to base can significantly affect housing prices, especially in urban areas like San Diego or Washington, D.C. A few extra miles could make a big difference in rent costs and amenities.
Take Camp Pendleton, for example: Living in Oceanside, right near the base, costs significantly more than living a bit farther out in Temecula. You have to decide whether the convenience of proximity is worth the extra cost.
- Amenities and Must-Haves: What’s essential for your family? Do you need a yard, a certain number of bedrooms, or a home in a specific school district? These choices will impact your budget and housing search. Be prepared to make trade-offs when necessary, and remember to balance your wants with your long-term financial goals.
Budgeting effectively and living within your BAH may not always be easy, but it is worth the effort. A well-thought-out financial plan gives you control over your future, relieving stress and setting you up for success. If you need guidance on how to optimize your budget or plan your next move, reach out to Project Valor for support and resources.