Sponsored by Navy Federal Credit Union
Every active duty service member got a 2.6 percent pay raise on January 1.
That doesn’t sound like much, until you do the math. The raise equates to $92.70 a month, more than $1,000 per year, for an E6 with ten years of active duty service. And that money gains even more value when you use it to pay off debt, or even simply put it in the bank.
In other words: Make that money work for you.
First, look at your financial health and pinpoint the areas where you need, or want, to do more. Be sure to utilize scheduled bill payments or automatic transfers so that you never even see that “extra” money. You can’t miss what you never had!
A pay raise can make a big impact on finances for any military family:
Get rid of debt
Follow the advice of nearly every financial expert out there and pay off debt. Even putting part of a monthly raise each month toward your car loan or credit card or mortgage can be huge. Paying an extra $100 a month on a 60-month, $20,000 car loan with a 7 percent interest rate can help you pay off that loan a whole year earlier. In that same scenario, you’d also save about $800 in interest, which means money in your pocket.
Choose a strategy and either pay off the debt with highest interest rate first, or tackle it bit by bit by paying off the smallest balances first. If you don’t have short-term debt, considering paying down on your mortgage. Online calculators like these can help you figure out what path to take.
One caveat: Be sure to check with your lender before paying off a loan early, as some have a penalty for doing so.
Build your savings
Take another important step to financial health by adding that monthly raise to your savings. If you don’t have one already, open a savings account or money market account where you can have cash readily accessible for emergencies or unforeseen circumstances such as home or car repairs. Experts recommend at least three to six months of living expenses, but that can be a daunting goal. Any amount that you can put in the bank is a good step – saving $100 a month for two years in a basic savings account can quickly add up to $5,000 or more.
If your rainy day fund is good, consider stashing all or part of the raise each month in a retirement account, a college fund or other long-term investment. Your money will grow even more, and you’ll be working toward a solid financial goal.
Treat yourself : In great financial shape already, but could use a little extra money to do something YOU want to do? Use the monthly raise to purchase long- or short-term certificates of deposit that can help you reach a specific goal, like a vacation or redoing your kitchen. Some financial institutions also offer special savings account that give higher interest for higher balances, or vary it based on how long you keep the money in the account.