How Deployments Affect Finances
If you’ve never had any experience with the military, or even if you have, you probably don’t realize what kind of effect a deployment can have on a family budget. Deployed soldiers and sailors receive a lot of financial incentives while abroad, especially if they’re in a combat zone, and it’s important for a military family to rework their budget before deployment. Deployments can be a great opportunity for a military family to get ahead financially, or they can facilitate major financial woes upon the servicemember’s return.
Here are some of the more common incentive pays for deployed military personnel:
Here are some of the more common incentive pays for deployed military personnel:
- Hostile Fire/Imminent Danger Pay: $225/month to any servicemember in an area subject to the threat of hostile fire
- Combat Zone Tax Exclusion: Translates to the amount of income tax that would be otherwise owed on base pay and HF/IDP (see above), as well as any re-enlistment bonuses if you re-enlist in a designated combat zone. Being physically present in a combat zone for any part of a month entitles a service member to an exemption for the whole month, so this tax exclusion can be very valuable indeed, often worth several hundred dollars per month.
- Hazardous Duty Incentive Pay: Generally $150/month given for performing hazardous tasks, such as Explosive Ordnance Disposal, Flight Deck Duty, or Parachuting
- Family Separation Allowance: $250/month given to a servicemember with dependents after 30 consecutive days of separation. This pay is nontaxable.
Additionally, with a servicemember deployed, Basic Living Expenses almost always drop. There is one fewer person to buy groceries for, less gasoline to buy, and a small but noticeable reduction in utility costs. Discretionary spending for the servicemember generally drops as well, but beware of port visits! With all that extra money available, it can be really tempting to ramp up your spending. Bear in mind though, that all of these incentives are temporary, and paychecks do return to pre-deployment levels. You want to be careful not to buy a lifestyle you can't sustain.
Labels: deployment, military pay
8 Comments:
I wonder then what makes military personnel approach payday lenders? ...A documentary I saw on CBS said to the effect that most payday lenders hover around military areas to catch their victims.
Do things change drastically when military personnel are not deployed?
This is so interesting. I don't know anybody well who's been in the military in decades.
Thanks for enlightening us civilians.
Fascinating look into a world I'm totally unfamiliar with. Thanks.
I would add a few more items of note:
1. HERO Act allows military members to contribute to Roth IRA. Of course your AGI limits need to be adhered to.
2. Savings Deposit Program (SDP): I've been deployed many times and have never heard about this until recently. If the servicemember is getting HFP, he/she is eligible for SDP. SDP allows you to deposit up to $10k with a guaranteed rate of 10% APR compounded quarterly. You can only earn interst on a max of $10k, so if you are deployed for over a year, you will only earn 10% a year on $10k not $11k for the second year. Once you redeploy, you must stop SDP, but you will get another 90 days worth of interest (i.e. another 2.5%). You can deposit into SDP via allotment or by lump sum through finance office. I was amazed at how many finance units do not know about SDP. My friend in the airforce called unit in a Iraq and they hadn't ever heard about it. Inexcusible.
3. TSP: normal max limits for TSP in 2007 is $15500; however, if you are in a tax exclusion zone, the ceiling increases to $45k for 2007. Once you return from tax exclusion zone, if you haven't meet the $15500 standard ceiling, you can continue to contribute; however, if you have exceeded the $15500, you cannot contribute again until 2008. Since TSP is before tax contributions, if you are only deployed 6 months out of the year and you max the $45k or contribute equivalent 6 months pay, your effective income would probably be zero or near zero for that year. That's something to think about. Otherwise the only benefit if you are deployed one year since the pay is already tax free anyways, is the higher contribution ceiling.
Golbguru, I think it's because military are paid once a month. It can be hard to budget.
The majority of soldiers using payday lenders are younger (18-21) and usually of lower rank. Many have not learned to budget properly or must support a family on a fairly sparse income - not to much different from their civilian peers but with, in the eye of the payday lender, a very stable source of income to prey from.
Yes, Soldiers receive a "paycheck" once a month but receive a mid-month disbursement which is direct deposit and very simple to budget from (that is if you actually receive your pay for the month and don't experience any other problems).
My husband is active duty military. We have been in the military since we were 18. We own our house. Have had 4 children and are now 23 years old. It's all about the rank. The reason we have so much credit card debt is because of the lower rank. We had to support a family, buy groceries, put me through college, the cars , the house etc. The Army does not pay us anything close to being able to cover all that. Sometimes our credit card is just a means for survival .... to buy milk and diapers when there is no money.
I would like to say that while there are financial benefits to deploying, there are also some additional expenses when a family member deploys. For example, the spouse may require help with tasks that the service member usually does, such as yard work or household maintenance. The spouse may incur extra child care expenses. Also, we tend to spend a fortune at the Post Office, sending care packages.
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