After a year of record inflation, 2023 is starting off with good news for service members and Department of Defense civilians as the biggest pay raise in 20 years hits their bank accounts with a record 4.6% boost in annual salaries.
As extra money arrives this month, the question now is how can you make these additional funds go as far as possible in the new year. With any pay raise, there’s always the temptation to spend the difference on a fun “splurge.” But it’s worth taking into account that there are some easy ways you can actually make your pay increase go further.
Here are tips on how to get the most out of your additional money from the 2023 military pay raise
Pay Off Debt
The new pay raise means you may have some extra money left at the end of the month after paying your usual bills. If you also have some outstanding debts, it's an ideal moment to pay those off while you can. It’s especially important to try prioritizing addressing any high interest debt you may have first and foremost. Even tossing a few extra dollars toward this debt now will go a long way in paying it down efficiently.
Avoid Impulse Buys
While it’s tempting to take that extra cash and spend it, it’s best to hold off on making any purchases you wouldn’t have made prior to your pay raise. Instead, keep living within your means so you can confidently and comfortably pay all of your expenses alongside larger financial priorities, like contributing to your Thrift Savings Plan (TSP) account or building up your savings. By guiding your spending with the “living within your means” mentality, you can help build more wealth over time.
Start An Emergency Fund
Plan to set aside money for an additional savings fund that will help you pay for unexpected expenses down the road. This may be particularly helpful if you’re thinking of leaving the military in the next couple of years and starting a new life with civilian personal finance habits. That transition will take some time to find a new job, a location you want to live, and more. So it’s important to have some extra emergency savings that can give you some flexibility in deciding what the right next steps are for you.
Pay Your Future Self
This is the perfect time to look forward to your future and ensure that you’re contributing enough to your retirement plan. I recommend increasing your contribution amount to your TSP by matching the percentage automatically set by your employer. That way you’ll be making your savings for the future automatic and providing yourself with the biggest nest egg possible when you’re ready to retire.
Make A Better Budget
Now is a great time to take stock of where you stand with a personal audit and an updated budget that can guide you throughout the rest of the year. First, write down all your assets, including how much is in all your accounts (banking, retirement, investment) and do the same for all of your debts (credit cards, student loans, car loans, mortgage). Next, find your monthly net income by adding up all your money coming in, including take-home pay and other sources (for example, a rental property or a part-time job). Compare your income to your expenses and make a plan for how you'll spend that amount of money each month.
By using these tips, you can take advantage of this major pay raise to up your financial game and plan ahead for a better future.
Author Clay Stackhouse is a retired Marine Corps colonel and works as a Regional Outreach Manager at Navy Federal Credit Union.