Financial Decisions During Military Enlistment | First Command

All paychecks are processed by direct deposit, regardless of your service branch. This means it’s important to find a military friendly bank and set up an account to handle direct deposits. For more information, visit DFAS, the Defense Finance and Account Service.

myPay is the Department of Defense's online payroll and accounting system. All members of the military use myPay to manage their pay. The system is entirely online and available 24 hours a day, 7 days a week.

myPay’s range of features include the ability to:

• View, print, and save leave and earnings statements
• View and print tax statements
• Manage the delivery method for statements
• Change federal and state tax withholdings
• Update bank account and electronic fund transfer information
• Make address changes
• View and print travel vouchers
• Control Thrift Savings Plan (TSP) enrollment

To learn more, visit the myPay website.

Every member of the U.S. military receives the same level of base pay according to rank and years of service. Pay is subject to:

• Federal Income Tax
• Social Security
• Medicare
• State Taxes

There are a few exceptions, such as service in a tax-free combat zone. Additionally, some states won’t tax military pay, depending on the amount of time the service member is stationed there.

The government provides allowances for food, shelter and clothing. As with any allowance, overages are the responsibility of the individual.

• Food: Service members who do not reside in a barracks or shared space will receive a Basic Allowance for Subsistence (BAS), which can be used to cover the cost of food both in and out of military facilities.
• Shelter: Service members who do not live in government-provided housing will receive a Basic Allowance for Housing (BAH). The exact amount available for BAH depends upon the individual’s location, pay grade and number of dependents.
• Clothing: Prior to the start of training, enlisted members will generally receive an initial set of uniforms. In most cases, service members are given an annual clothing allowance to help replace uniform items as necessary.

While the military does provide some basic protection and insurance for individuals living in government-owned base housing, you may be surprised to learn that there are definite limits on how much that insurance will cover.

• Overages: If the value of your personal belongings exceeds the government's coverage limit, expensive items may not be covered in the event of a flood, fire or other loss.
• Liability: Liability coverage has limits, too. For example, if a civilian injures themselves while visiting a military member in government housing, that member may be held responsible for any costs that exceed the base level of government coverage. Accidents such as leaving the stove on and causing a fire may also result in damages above and beyond the standard level of insurance coverage.
• Travel Losses: Service members understand that frequent relocation is part of the job. Unfortunately, items that are lost, stolen, or damaged while in transit or in storage may not always be covered by the military.

When investigating military renter’s insurance, look for the following:

• Level of Coverage: A basic policy may cost as little as five dollars a month and cover up to $2,500 worth of damages. If you own items that are worth significantly more than that, you may want to investigate a higher level of coverage.
• Personal Article Floaters: Specific high-value items such as jewelry or electronics may exceed government policy limits. These items can be added under “personal article floaters.” “Floater” items have no deductible and are usually covered under a much broader variety of claim types.
• Replacement Cost Policy: This added functionality is designed to cover the cost of replacing lost items using current prices that will cover what the item is worth even after depreciation.
• No Territorial Limits: Changes in assignment often come with a Permanent Change of Stations (PCS). For this reason, it’s important to have renter’s insurance without territorial limits.

The two most common types of life insurance are:

• Temporary (Term Life) Insurance: Term life insurance is an option that provides coverage for a limited period of time. Servicemembers’ Group Life Insurance (SGLI) is term insurance that expires when you separate from the military.
• Permanent Insurance: Permanent insurance offers lifetime protection. This type of insurance will follow you through your military career and beyond.

Service members are eligible for generous low-cost term life insurance under Servicemembers’ Group Life Insurance (SGLI). New military members usually qualify for SGLI coverage as long as they are classified as one of the following:

• An active-duty member of the Army, Navy, Air Force, Marines or Coast Guard
• A cadet or midshipman at one of the U.S. military academies
• A member, cadet, or midshipman of the Reserve Officers Training Corps (ROTC) engaged in authorized training and practice cruises
• A member of the Ready Reserve or National Guard, assigned to a unit and scheduled to perform at least 12 periods of inactive training per year
• A volunteer in an Individual Ready Reserve (IRR) mobilization category

With SGLI, servicemembers are entitled to:

• Coverage up to $500,000
• 120 days of free coverage from the date they leave the military
• Extension of free coverage for up to two years if a member is totally disabled after leaving the military
• Part-time coverage (for Reserve members who don’t qualify for full-time coverage)

Service members are automatically enrolled in SGLI at full coverage, but changes can be made to SGLI coverage at any time. In most cases, the low cost of SGLI makes keeping and paying for the full $500,000 a smart financial decision – even if it’s more coverage than currently needed.

It’s important to note that while SGLI is robust and affordable, a term policy is not permanent insurance. Purchasing a base amount of permanent insurance when you are young and in good health may allow you to lock in a reasonable rate for life. SGLI coverage ends when you separate from service, making the early career stage an ideal time to consider permanent life insurance that can eventually help replace your SGLI.

When joining the military, saving for the future may not be top of mind. Building good financial habits early on, however, can help young adults avoid costly mistakes and set the stage for long-term financial health. In addition, the military benefits package offers unique savings opportunities, so we recommend taking advantage of those from the very beginning.

The Blended Retirement System (BRS) is the military retirement system which includes two components: A guaranteed lifelong pension for those who serve 20 years or more, and the opportunity to save, invest and receive government matching contributions through the Thrift Savings Plan. For those who transition from the military prior to 20 years of service, the BRS ensures that you can leave the military with retirement savings similar to those you might accrue in the private sector.

The Thrift Savings Plan (TSP) is a retirement savings and investment plan available to all members of the U.S. Armed Forces. It is designed to offer savings and tax benefits similar to those that corporations offer their employees under 401(k) plans. The TSP is known as a “defined contribution plan,” meaning that participants contribute designated amounts to the plan through payroll deductions. Participation in the Thrift Savings Plan is an excellent opportunity to build wealth over time.

It’s especially important for service members in the Blended Retirement System (BRS) to take advantage of the TSP, since this program constitutes a significant portion of their retirement benefit. 

• Automatic contributions: Every service member in the BRS is eligible to receive an automatic government contribution equal to one percent of your salary on a pre-tax basis every pay period, beginning 60 days after your start date. This one percent is an automatic contribution, and you don’t have to do anything to receive it. The automatic contributions are fully vested after two years. At that time, they are yours to take with you if you leave the service.
• Matching contributions: After two years of service, the government will match your pre-tax contributions dollar for dollar up to the first three percent, and 50 cents on the dollar up to the next two percent. When you combine this with the one percent automatic contribution, that adds up to a total five percent contribution by the government on your behalf. By allocating five percent of your paycheck to your TSP account, you will actually be investing an amount equal to 10 percent of your pay.

For all the uncertainty associated with life in the military, unexpected expenses – and the financial instability that comes with them – may actually be less likely. Historically, job security in the military is greater and the comprehensive coverage provided to service members protects them from unexpected bills. 

However, life is unpredictable, and building an emergency savings fund is an essential first step toward financial wellness. With a financial cushion set aside, you’ll be less likely to incur credit card debt or tap investments intended for long-term goals when the need arises.