Congratulations on your spouse’s promotion! With your love and support, his or her hard work and dedication have paid off. This promotion comes with more responsibility and...a pay raise! Celebrate the achievement and plan to put the additional funds to work to reach your family’s goals.
Financial Planning Considerations
What are your goals and dreams and how will you reach them? The purpose of a financial plan is to provide a roadmap for your future. Think about what you would like to do and what it is going to take to get there. A promotion with a pay raise is always a good time to review your goals. If you need some help to get started, visit our Goal Setting section at https://www.milspousemoneymission.org/goal-setting/.
A strong family spending plan (or budget) will help you stay on track and provide a framework to achieve your goals. Think about how the pay increase can help fund your short- and long-term goals.
Visit Money Ready 101: Create a Budget, to learn the four steps to creating a sound spending plan, which includes revisiting your budget often to make adjustments as your life changes. Be sure to check out the sample budgets and a budget worksheet offered there, too.
Watch this video to learn how Shaun, an Air Force spouse, and his wife use each promotion and pay increase to get ahead on their financial goals.
Eliminating debt is one way to put your new income to work. This way you can focus on funding long-term goals, like saving for retirement or your child’s college education. Two well-known ways to pay off debt are the snowball method and avalanche method. First, make a list of your debts and include the balance, interest rate and minimum payment.
- Snowball — Attack the smallest balance first. Pay the minimum balance on every debt and pay extra on the smallest loan first. Once that debt is paid off, move on to the next smallest balance and keep going until all debt is paid off. This method can give you an emotional boost as you begin knocking out debts.
- Avalanche — Attack the largest interest rate first. Pay the minimum balance on each debt and pay extra on the loan with the largest interest rate. As that loan is paid off, move on to the one with the next largest interest rate. This method will save you money long term because you will pay less in interest.
The most important thing to remember is to find a plan that works for you and stick to it!
Experts recommend having three to six months of living expenses saved in an emergency fund to cover unexpected repairs, a job loss, or other unforeseen events. Consider using your increased income to fund this account.
Set an automatic transfer from your checking to a savings account to fund this goal more easily. Check out this video on Understanding Emergency Funds to quickly learn how to build your reserve.
Investing your spouse’s pay raise and letting it grow for retirement is a great idea whether they are covered under the Legacy System or the Blended Retirement System (BRS).
Check to see if your spouse is maximizing their matching funds if they are covered under BRS. To do this, see if your service member contributes 5% to the Thrift Savings Plan. Their branch of service will match 5% for a total contribution of 10%.
With a pay increase, the dollar amount into the TSP will also increase as the contribution is a percentage of income. But a promotion is a great time to consider increasing your contribution percentage! The sooner you do this, the easier it will be as you won’t feel the impact to your cash flow as much.
The maximum contribution to the TSP is the IRS limit of $19,500 in 2020. However, make sure not to max out contributions too early in the year because you would miss out on some of the matching funds.
Visit Money Ready 301: Plan to Retire for more information on this topic and for videos on the Legacy System, BRS and TSP.
Changes to the TSP contribution must be done on myPay. Your service member will need to visit https://mypay.dfas.mil and log in.
Please visit the links below for each section to get more information. Promotion is an exciting time and it presents some financial opportunities. You can achieve your goals and succeed with accurate information and financial planning!
Promotion is a great time to reflect on long-term career goals. Do this as a family and visit the DoD Career Ready Portal. You will find information and links to valuable resources designed to help service members, veterans and spouses. Visit USALearning.gov for more information.
Remember, every family’s situation is different. Your needs, goals and wishes are unique. What works for one family may not be right for you. Evaluate where you are and where you want to go. These tips and resources can help you get there.
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