Author: JJ Montanaro, USAA
BAH: everyone in the military knows that these three letters stand for “basic allowance for housing.” It’s meant to cover the cost of your mortgage or your rent, right?
Did you notice that it’s BAH, not BAM or BAR? Did you know that it’s designed to cover the whole cost of housing – rent plus utilities plus renters insurance? If you knew that, are you practicing it?
The Defense Department’s Basic Allowance for Housing breakdown outlines what your BAH should cover. So if you’re looking for properties priced right around your BAH total, you may be making a costly mistake.
Here’s how it can all go wrong. Let’s say your BAH is $1,000 a month, and you use that as your guide. You find an apartment for about $1,000. Now, you’ve used up your entire housing allowance on rent, and you haven’t even thought about utilities and renters insurance. So you could be looking at nearly $300 in housing costs coming out of your pocket, rather than being covered by your BAH. Before you know it, living the financial golden rule – spend less than you earn and save consistently – just got a lot harder.
If you’re buying a home and treating the BAH as equal to your mortgage payment, the odds against you are even higher. Don’t forget, now you’ll have to add property taxes and homeowners insurance, which is more expensive than renters. Besides utilities, homeowners must pay for maintenance and upkeep, potential homeowners association dues and any costs to make the house suit your own style (repainting, window coverings, landscaping, etc.). Blowing your entire housing allowance on the mortgage payment could lead to a budgeting disaster.
If you’re overspending on housing, which for most folks is their biggest monthly outlay, it’s a lot harder to live within your means. I’m all for clipping coupons, cutting out expensive coffee and looking for bargains, but if 40 to 50 percent of your income is tied up in putting a roof over your head, you probably won’t have a lot of wiggle room for those cuts to make a difference.
So, the next time you’re in the market for housing, check the BAH guidelines for your area and use the breakdowns as your guide. If you’re getting $1,000 of BAH and rent is only supposed to be about 75% of your total allowance, shop for housing in the $750 range, not $1,000 or higher.
And if the DOD decides to cut renters insurance from its equation – an idea that’s been proposed – make sure you find the money to cover it yourself.
Do the math and try to stick to the percentage of your housing allowance that you’re supposed to spend on rent. In the long run, it’ll guide you to a better housing decision and possibly more money in the bank. And who wouldn’t want that?
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