There are so many unique things about personal finance when you’re in the military. Your pay may change from paycheck to paycheck depending on a wide variety of factors. You have pretty extensive benefits including Basic Allowance for Housing and Basic Allowance for Subsistence. We talk about this stuff all the time.
But today we’re going to talk about an overlooked part of military personal finance: How to plan major purchases when you don’t know where you’re going to live next. How do you build a PCS-proof financial plan?
It’s tricky.
Most military members move every two to four years. There are shorter tours and some situations where you stay in the same place longer. But from a planning perspective, you should assume that you’re going to move at least every two to three years. Knowing that you are (likely) going to move in two to three years presents some financial planning challenges, but those same challenges also create opportunities.
The Challenge: Your Budget Changes Every Move
The challenge of a PCS-proof financial plan is that you don’t actually know what your budget is going to look like in a year or three. Every PCS, you can have changes to your allowances, your housing expenses, spouse income, childcare costs, and much more.
I often see this with car payments. A service member is living cheap, sharing a house with some buddies, and has a lot of disposable income. Based on that disposable income, they buy a car. With a loan, which means a monthly payment. Sometimes even a big monthly payment. And then they PCS, and housing is crazy expensive, and that car payment is unmanageable.
Or a family buys a house that they can afford while they’re getting BAH for that area. But they PCS, and rent doesn’t cover all the expenses of landlording. And now they are struggling to cover the costs of that house at their last duty station plus manage a place to live at their old duty station.
The Solution: Don’t Make Long-Term Financial Commitments
The solution to this problem is pretty simple. Well, it is simple in theory. In reality, it might be harder.
Keep your financial commitments within the window of your current orders.
For the car buyer, that would mean a shorter loan, so the car would be paid off before the next move. (You know I would prefer there be no car payment at all, but sometimes that is impossible.)
It’s a little harder for the house buyers, because most people can’t pay off a house in 2-3 years. But there are still ways to mitigate the possible damage. Buy a house that will pay for itself if it becomes a rental. Have a larger emergency fund to cover unexpected expenses. Buy a less expensive house. Sell when you move, even if you take a small loss. Don’t buy at all and rent instead.
The Opportunity: More Financial Flexibility
If you keep your spending plans within the length of your existing orders, you will have a ton of flexibility thereafter. Whether you end up staying in the same place, or move somewhere totally different, you aren’t weighed down by old financial commitments. You can pay for life as you live it instead of paying off decisions from years ago.
The Challenge: Everything Is Different OCONUS
If your PCS orders take you Outside the Continental United States, aka OCONUS, or overseas, there is a whole different set of issues. It can really mess up a financial plan if you make decisions that are upended by an OCONUS move. This can happen all sorts of ways.
I see this happen with cars a lot. Service member buys a new car. Exciting! Then they get PCS orders to a location where the car can’t go. Or it can go, but it isn’t really the best choice. They have to make the difficult decision whether to store their brand new car, maybe still making payments on it, or sell it, usually at a loss.
Or you buy beautiful big luxurious living room furniture and get orders somewhere that you’ll live in a tiny apartment.
Or, you make any decision based on the spouse’s employment, or the service member’s side hustle, and get orders somewhere where the spouse can’t work or the side hustle can’t happen.
The Solution: It’s OK To Make Do
Knowing that you could go overseas at any moment (no, literally) gives purchases a different perspective. That brand new car with the brand new price tag is a lot less appealing when your consider that it might end up in storage next year. That fancy furniture isn’t so attractive if you think it might get damaged in shipping.
Knowing that you could go overseas makes it mentally easier to deal with something less than what you were dreaming about. Maybe that means buying a beater car until you get those next orders, or Ikea furniture until you get out of the military. Compromise is OK.
The Opportunity: Use That Money Somewhere Else
The big advantage of “making do” is that it frees up money for other purposes. If you’re not paying a $600 car payment, that money could go into retirement accounts. Or an education (or educational savings accounts.) Or upgrades to that house you’re going to sell. Or your PCS fund.
The Challenge: It’s Hard To Say No To Yourself
Life isn’t meant to be all sacrifice. Small indulgences can help you stick to a plan, and bigger splurges ar
e the reward for reach financial success. No one wants to drive a 1995 Civic forever – even if they are incredibly fun to drive 🙂
The Solution: Delayed Gratification With an End Date
One of the most powerful tactics in personal finance is delaying what you want but just a little bit. Desperately need a new sofa? Regular PCSes are great for the mental side of delaying purchases because you usually know roughly when that move is g
oing to happen.
Putting off getting a sofa is so much easier when there’s an end date attached to the delay. Live with the old sofa for just one more tour, and throw it out before the packers come. (Or after, if you need to be comfortable for a few more days.) Then a new sofa happens at the new home.
The Opportunity: Waiting Becomes A Habit
Once you get in the habit of putting off purchases, it may become a habit to put things off a little longer. And that’s OK! Smart financial habits are never a bad thing.
Moving every few years creates challenges to a financial plan, but it can also help you build your financial future. Seize the opportunities!
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