How to Prepare Your Finances to Join the Military

Joining the military is a major life decision. It’s not something you jump into overnight. It requires mental, physical, emotional and financial preparation.

When you serve in the Armed Forces, you're held accountable for your finances. If your finances are not sound, you can get in trouble for it. Because of that, money management, maintaining good credit and saving money in the military are crucial skills.

Preparing your finances to join the military can make the transition easier and set you up for success.

Here are some steps you can take to prepare:

1. Review Your Credit Report
2. Understand the Servicemembers Civil Relief Act (SCRA)
3. Know Your Military Pay and Benefits
4. Budget and Plan for the Transition

1 - Review your credit report

The quickest way to ready your finances for the military is to get and review your credit report.

Your credit report is basically a report card that shows how you manage your money. You should learn how to read your credit report. It’s your “financial good name". And it’s what the Department of Defense reviews before you join.

It’s wise to review your credit report to find problems and correct them before the DoD reviews them. The military wants to know if you pay your bills on time or have large debts. Reviewing your report gives you a clear picture of your current financial state and helps you catch mistakes early. It’s also a jumping-off point to make improvements.

2 - Improve your credit score

If you’re thinking about joining, your credit score may not be where you want it. It may be that you need to build or repair your credit.

While it may not directly impact your military experience, having a good credit score could save you money in other areas and impact your financial future overall.

Here are some ways you can start working on your credit:

• Make on-time payments
• Pay down outstanding balances
• Find and fix errors on your credit report
• Start building credit if you haven’t already

*To learn how to start building credit, read the blog on “How to Build (or Rebuild) Credit”. *

3 - Understand the Servicemembers Civil Relief Act (SCRA)

The SCRA was passed into law in 2003 to provide protection and benefits to help reduce financial burdens for active-duty Servicemembers.

Understanding the SCRA is important so you can get the most out of its and benefits and protections.

An important note, some rights under the SCRA are conditional upon your obligation being “materially affected” by military service. If you want to use a protection or benefit under the SCRA, seek legal assistance from your installation legal office on your situation.

Some of the more common protections and benefits include:

• Interest Rate Reduction - Reduction of the interest rate on debt incurred before military service to 6%.
• Termination of Apartment or Car Lease - You may end your car or apartment lease in some cases such as getting deployment orders or orders to move outside the continental U.S.
• Protection of Servicemembers Against Default Judgements - Under this protection, an attorney is made available to represent the Servicemember in their absence due to military service in civil and administrative cases such as child custody and divorce. A delay or stay of 90 days or more may be granted.
• Postponement of Foreclosures - If you purchased a home before military service, a lender cannot foreclose on the house unless they receive a court order. This protection applies to states that do not require a court order to foreclose on a home, also known as nonjudicial foreclosures.

SCRA and student loans

Under the SCRA, interest on federal and private student loans started before your military service can be no more than 6% during active duty. You will have to initiate using this benefit by giving a copy of your orders to your loan servicer.

Know your military pay and benefits

Joining the military has its financial advantages. Understanding what they are and how to utilize them best helps you plan and budget.

Here are the types of military pay and benefits you can expect.

Basic pay

The salary you will earn every two weeks. The amount received is determined by years of service and rank. It is outlined in the Military Pay Chart.

Basic Allowance for Housing (BAH)

BAH helps military members cover the cost of their housing.

Basic Allowance for Subsistence (BAS)

The purposes of BAS is to provide the Servicemember (not dependents) money to cover the cost of food when it’s not provided by the government.

Medical and dental

The DoD provides active-duty members with free medical and dental benefits. Affordable medical and dental care are offered to military dependents.

Bonuses and special pay

Servicemembers joining or continuing service may receive a financial bonus depending on their career field need and time commitment.

Additionally, military personnel can receive special pay for the duties they perform such as being on jump, flight or submarine status.

Retirement savings

Members of the military are eligible for a pension after 20 years of service. Additionally, you can save money for retirement through the Thrift Savings Plan, the government’s version of a 401k.

Uniform allowance

Enlisted members of the military (not officers) are given an annual allowance to help cover the costs to maintain and update required uniforms. The uniform pay reduces or eliminates your out-of-pocket expenses for work clothing.

4 - Budget and plan for the transition

Now that you have a clear picture of your current financial situation, your credit report, and you have a basic understanding of the SCRA and the benefits it provides, it’s time to make a spending plan.

A spending plan, or budget, is the last piece of the puzzle to have in place when preparing your finances to join the military.

Budgeting basics

If you’ve never created a budget before, remember this.

Keep it simple.

There’s no need to over-analyze or add your financial life story. When you create a budget, you need to know how much money you’re bringing in and how much is going out every month.

And don’t forget to calculate and add the things that don’t happen every month, such as oil changes and Christmas. That way, you can include them in your plan and start saving up for them in advance if needed.

Budget style

Pick a budget method that works for you and one you’ll not only create but use. You can try a Google Sheet, budgeting apps, or paper and pencil. Test a couple to see which method you prefer.

Present and projected budgets

There is a difference between your financial situation now and what it will be like when you join the military. Use the information from your credit report, and the known military pay and benefits to start planning your budget.

It’s wise to create two budgets, one for before you start the military and one for the day you join. Not only will this be key to managing your money on active-duty, having the two budgets to compare can help you during the financial transition.

Final thoughts

No matter where you are in your military journey, joining or already serving, taking the time to prepare your finances can go a long way to reduce financial stress and help lead you to financial success.

Plus it will help you start your military career off right.

About the author

Lacey Langford is an Accredited Financial Counselor® and a candidate for CFP® certification with over ten years experience in financial counseling and coaching. She served four years in the U.S. Air Force and holds a B.S. in Business Administration with a concentration in finance. She also has an Executive Certificate in Financial Planning from Duke University.

*Image: Photo by Tech. Sgt. John Galvin, 153rd Airlift Wing. The appearance of U.S. Department of Defense (DoD) visual information does not imply or constitute DoD endorsement.