Military Finances - Understanding BAH

What You Need To Know About Basic Allowance for Housing (BAH)

Submitted by Drew Cheneler

Making the most of your BAH can help you get ahead financially.

Making the most of your BAH can help you get ahead financially.

Drew is an active duty service member in the U.S. MIlitary and has a deep passion for personal finance. Coastie during the day, at night Drew writes for his personal finance blog Broke-Millionaire.com

(Contributions are guest opinions only and don’t reflect the opinion or endorsement of Money Fit by DRS, our staff, client or other interested parties.)

Serving in the U.S. Military requires a deep sense of passion, willingness to learn, and a calling to be a part of something larger than yourself. People do not join the military for the money; however, through my experience and interactions with countless Sailors, Airman, Marines, Soldiers, and Coasties, the U.S. Military is one of the best opportunities to propel your financial journey.

Guaranteed Paychecks
Why? The U.S. Government is notorious for consistent bi-monthly paychecks unless Congress decides to shut the government down, and phenomenal benefits, which you will have access to as a member of the U.S. Military.
We all know the U.S. Military offers one of the best retirement pensions and healthcare services, but today we are going to focus on another aspect of your entitled benefits if you chose to answer the call to serve.

What is the Basic Allowance for Housing (BAH)?
If you are a member of the military, then you know first-hand how great our Basic Allowance for Housing (BAH) stipend can be. For those who are not in the military, BAH is a monthly stipend we all receive for housing costs (primarily to be used for mortgages or rent payments).
However, it is important to note that your BAH monthly stipend can vary depending on where you are stationed and what rank you are.
Of course, BAH in Montgomery, AL is going to be less than the District of Columbia or the San Francisco Bay Area. The cost of living is the primary factor that decides which locations have a higher BAH than others.


House Hack your BAH – Pocket More
What is the best part? If you have a frugal mindset, which I am assuming you do, then this monthly stipend is an absolute game-changer.

Your BAH is strictly for you to keep and use at your discretion. Let me be crystal clear, you do not need to use your entire monthly housing stipend, and whatever you do not use is for you to keep tax-free.

In fact, I encourage you to save as much of it as possible. If you are fresh out of boot camp, OCS graduate, an ROTC graduate, or commissioned through a Service Academy, then you can easily find a roommate to split rent with at your assigned duty location.

I know three recent Service Academy graduates who are stationed in Norfolk and split the monthly rent on a 3 bed, 3 bath home. Let us do some quick math. These three junior officers together pay close to $1,800 each month on rent. They each receive a BAH monthly stipend worth $1,512. However, since they are roommates, they split the rent cost evenly amongst themselves.

Additional Monthly Savings:
$1,800/3 = $600 each month per person
$1,512 - $600 = $912 Extra a month for each person

It is crazy, right? These three junior officers are taking full advantage of their BAH. I know some of you may not want a roommate, but I think an extra $912 a month is worth it, and here’s why.

Invest your Money
If you have a deep desire to retire as early as possible, especially with a military pension to accommodate it, then keep reading. What if I told you those three junior officers don’t spend a dime of their BAH savings? They don’t.
You know why?
Like any frugal money-making machine, these three invest all $912 into their brokerage accounts. They all share two similar goals.

Goal one: To be the best officer they can be and serve 20+ years. This will allow them to retire with a full military pension, which is 50% or more of their base salary. Believe me, they will be able to retire comfortably.

Goal Two: They all want to retire with an excess of a million dollars in their investment portfolio.

It seems a bit crazy, right? It is not. In fact, I am willing to wager that all three of them will retire millionaires. They are all debt-free (college paid for by the military), and they are already implementing Dollar Cost Averaging.

Dollar-Cost Averaging is the easiest strategy to use, and over the course of your working career can net you an excess of a million dollars.

However, this strategy requires discipline. They need to keep contributing each month, and when they have kids and a significant other, they may need to scale back how much they are contributing, but nonetheless, need to remain focused on their goal.

For our readers who do not know what dollar-cost averaging is, just know it is beyond simple. Essentially, dollar cost averaging is when you contribute a specific amount each month to your investment portfolio.

Regardless of what price the stock, index fund, or mutual fund is at you still purchase shares of that specific asset. This allows for your money to compound and frees you from the nuances of portfolio management (timing the market highs and lows).

Key Takeaways

The military provides you with a reasonable paycheck, basic allowance for housing, and a myriad of other benefits. Now, we only talked about three junior officers that I personally know. But like you and I, they are taking the first steps to financial freedom.

They are investing their spare money, and pseudo house hacking, which frees up excess capital. Again, the journey to financial independence is different from everyone, but you need to get creative and begin to invest as early as possible.

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