Today we have the pleasure of hosting a guest writer who is an expert on all things budgeting. This post is written my Myranda Griebel, author of the blog “Survive Today.” Visit her website survive-today.com to read more on budgeting and personal finance. Take a look at her valuable insight into budgeting below!
Whether you’re enlisted, an officer, just out of basic, or have 15 years of service under your belt, having a budget is essential for your financial wellbeing. Failing to budget makes it difficult to achieve your financial goals, pay for unexpected expenses, make large purchases, and stay out of (or get out of) debt. Not to mention the stress that comes with not knowing where your money is going or why your paycheck only seems to just barely make it to the next payday. Having a budget doesn’t necessarily mean that you are going to be spending the absolute minimum amount of money possible each month (although it could if that’s what you prefer). To quote Dave Ramsey, “A budget is telling your money where to go instead of wondering where it went.”
Budgeting for the Essentials
There are only four things in life that are necessary for survival: housing, food, transportation, and clothing. These four things should take top priority in your budget because they are the things you can’t live without. If you are receiving BAH and BAS, then your housing and food is covered for the most part. Food means groceries in this case, not dining out. Transportation expenses should include a car payment (if you have one), fuel, auto insurance, and maintenance. Clothing probably will not be a regular expense unless you have young children. Necessary clothes, such as replacing worn out tennis shoes, should be of top priority when budgeting for clothing while fun clothing, such as a $200 brand-name jacket, should not.
Budgeting for Tomorrow
Do you plan on staying in for the full 20 so that you can draw pension? If so, then that’s great! If not, then that’s fine as well. Either way, investing in your retirement should be one of your priorities. Yes, even if you are planning to draw pension, you should still invest additional money to pay for your retirement. Why? Because what if you change your mind and end up not serving the full 20 years after all? Or, what if you do end up serving the full 20 but the pension you receive isn’t enough to cover the lifestyle you want to live in retirement? If you don’t have any debt, you should set aside about 15% of your pre-tax income (not including BAH, BAS, etc.). If you are contributing to your TSP and receiving the full match, then you’ve already got 10% right there. You can invest the additional 5% in other accounts such as a Roth IRA.
Another priority should be setting aside a chunk of money to pay for unexpected expenses when they come up. A good rule of thumb is to have three to six months-worth of expenses set aside for emergencies. This means that you would have enough money to cover three to six months of the essential expenses listed above. Also, if you do not have debt then you should be saving money for large purchases that you hope or plan to make in the future such as new cars or homes. Ideally, when it comes time to buy a new car, you should be able to pay cash to avoid paying the interest on a depreciating asset. With a house, it would be best to have 20% down to avoid paying any PMI.
Side note — Don’t forget about the VA loan if you are trying to avoid paying PMI!
Budgeting for Fun
The lowest priority on your budget should be your fun money. Once all the other expenses are budgeted to meet your goals, then whatever is left over can be spent on the fun stuff. Things like vacation and travel, entertainment and dining out, random miscellaneous purchases, and large non-essential purchases (like a boat or a camper) fall into this category. You could either choose to spend all of your fun money each month or you could save up for larger expenses such as vacations or boats. Again, it is ideal to pay cash on these items so that you’re not paying interest on either a depreciating asset (the boat) or something intangible (the vacation). $
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