How do I save money for a house while in the military?

[sfalexi]

I'm in the Army, been in 6 years, and in the army we get BAH (basic allowance for housing) if you're married based on the area we're living in. Usually, BAH will cover the average cost of renting a house for a small family.

From what I've seen, I can usually find a house or apartment comfortable enough for me and the Mrs that will allow my BAH to cover my rent and also utilities.

But I'll be moving every few years, and don't want to buy a house and just try to rent it. However I have a LOT of time to save up for a house (at least 14 more years).

So what would you suggest? I have some bills to pay off right now, but after that, is there some budget or maybe percentage that would be recommended to save for a house? Any way to save effectively, but not forget about saving for kids college (no kids yet, but one day), retirement, etc.?

Alexi

[lovcom]

Can you get out of the army?

I'd put my family first and let the single guys support our country's armed forces.

Get out if you can, and get a civilian high paying job and prosper. This is what I'd do if I were in your boots and wanted to save up for a house.

I never understood why a family man would continually stay in the armed forces, leaving a wife and children behind. They need you a heck of a lot more then the country needs you, and with all the single guys available in this country, there is no need to serve.

[creditcardfree]

The basic idea is to live on less than you earn. So, if you will be renting for the next 14 years, then rent for less than BAH and save the difference each month. Since your time frame is long, you could invest in mutual funds, depending on the type of account this money may be taxed.

Yes, pay off your debt as soon as possible. Save money for an emergency fund ($1000 minimum and eventually 3-6 months of expenses). Save for retirement (tsp and roth iras). Save for your house, and save for college.

We're military and actually own our home (mortgage). We are AGR (active guard reserves) and have lived in our first location for 3 years and expect to be here another two years. We did own a home for 9 years prior to this move, so we had considerable equity for our down payment. We also pay additional on our mortgage payment, so that we don't lose money when we move (realtor costs/housing price decline). Right now the home has gone up in value by about $10K.

Good luck. The more you tell us about your income, expenses, debt and savings the better advice you will receive!

[creditcardfree]

Can you get out of the army?

I'd put my family first and let the single guys support our country's armed forces.

Get out if you can, and get a civilian high paying job and prosper. This is what I'd do if I were in your boots and wanted to save up for a house.

I never understood why a family man would continually stay in the armed forces, leaving a wife and children behind. They need you a heck of a lot more then the country needs you, and with all the single guys available in this country, there is no need to serve.

The answer to original poster's question is the same regardless their line of work. Spend less than you earn.

[lovcom]

Not true.

He might be able to make more $$ in a civi job, and he'll not be vulnerable to being called away from his family. The military is a lousy place to build wealth.

[shibabigk]

Thank you for serving your country!
Figure out what your goal is. How much do you want to have to put towards the house? From there figure out how much you need to save each month to get there. Now your plan can change of course, so you might need to re-evaluate as time goes by.

[creditcardfree]

Not true.

He might be able to make more $$ in a civi job, and he'll not be vulnerable to being called away from his family. The military is a lousy place to build wealth.

Your right he might...or he might not. You do not know.

Thanks for your support. My husband makes near six figures in the military. I feel pretty confident that living below our means and saving more than 20% of our income we will build wealth.

[reallyprettyhappy]

Can you get out of the army?

I'd put my family first and let the single guys support our country's armed forces.

Get out if you can, and get a civilian high paying job and prosper. This is what I'd do if I were in your boots and wanted to save up for a house.

I never understood why a family man would continually stay in the armed forces, leaving a wife and children behind. They need you a heck of a lot more then the country needs you, and with all the single guys available in this country, there is no need to serve.

What is wrong with you, lovcom? I mean I've read some seriously moronic posts from you before, but this has topped them all, so far. You have no idea whatsoever how much this poster stands to make in the military versus in the private sector. It would come down to so many variables, including his education, field of work, experience, job security and availability and more. I think you would be shocked how much money most people in the military actually make. And given a good plan and a solid financial education, it is highly possible to build wealth in the military. And besides, who in their right mind would leave solid employment in this crappy economy for no good reason.

The OP should save to buy a house the same way anyone else should. Income less expenses = savings. Getting the right balance for your savings pot is key. Remember your benefits and sketch out your plan. Do you plan to 'retire' from the military? If so, figure out how your pension will feed into your overall retirement plan and adjust savings for that accordingly. Putting your kids through college? Look into the new GI bill. You benefits can now be passed down to your dependents, but you have to have served 10 years I think, to be eligible for that. Take that into account in your plans. Take full advantage of your tax exempt income from deployments and, if possible, get permanent residency in a state doesn't have income taxes and you can keep it as long as you are serving (better yet, if you do a stint in Alaska, I believe they pay you to be a resident). There are so many awesome savings opportunities that come with being a military member. The hard part is just finding out about all of them. My number one advice for maximizing your military income is to become a member of USAA, if you aren't already. Their insurance rates can't be beat. Their customer service is impecable and their loan rates are incredible. My DH and I both have one credit card each through them and our apr's are 4% and 6% respectively, even now as other banks have raised their rates across the board.

I'd also recommend looking into when your base (camp/fort or whatever) is offering the next Dave Ramsey Financial Peace University course. It should be free or a very nominal cost ($20) and they'll give you all of the materials and you go once a week and watch one DVD of the course each week. I think that might give you a great foundation for your planning.

Good luck with everything and I want to sincerely thank you and your family for your sacrifices. Some people just don't get it.

[buildmybudget]

First off, thanks for that last post reallyprettyhappy.

Like everyone else has suggested, you need to find the best way to maximize your income and minimize your expenses. The only way to reach your financial goals though is to be able to see where you are headed financially. You need to be able to see how much extra income you have each month, how long it will take you to pay off your debts, how much you can allocate to savings thereafter and so on.

Use a pencil and paper and map out your monthly income and expenses and take into account the periodic expenses that will pop up in the next year. Work backwards to figure out how much you can save each month towards your debts or down payment on a house and then implement the plan. The key to reaching your goals is to be able to see where you are headed financially.

[disneysteve]

I would start with the Elizabeth Warren formula:
50% for needs, 30% for wants, 20% for savings

Since you are military, some of your needs that the rest of us pay for may be taken care of, in which case you can adjust the formula to move a higher percentage into savings, so maybe your formula would look more like 40, 30, 30 or something like that. I assume military provides some type of retirement benefit so if you have less need to provide for your own retirement, more of your savings portion can go toward a home purchase.

[sfalexi]

Thanks for the advice. My pay isn't bad. Next year I'll be around 45k a year (factoring in BAH and tax-advantages), and when I get promoted (should be sometime next year) should go up to around 48k.

I've listened to TONS of Dave Ramsey, listen to the podcasts, and am currently working through his babystep 2. After selling a car that I rarely use, I'll have about 20 months till being debt free.

I appreciate the advice, the only thing is I'm not quite sure what my goal for saving should be. Who knows what prices houses will be when I'm ready to purchase one in 15ish years. Who knows WHERE I'll want to buy one. Ideally I'd like to buy a house cash, but don't know where my savings will be. I know I'll be able to put a good downpayment.

creditcardfree,
I definitely have started to live below my means. And it's pretty darn easy. Given my raise and promotion, my BAH will easily cover rent, utilities, and probably cable and internet of my next place. Freeing up that much more to pay off bills.

One thing I've been thinking of is after building my 3 - 6 months of giant emergency fund, just lumping pretty much everything else into another "giant" savings fund (other than my Roth IRA) and use that for my major purchases (buying a used car at some point if we need another one, kitchen appliances, repairs, downpayment or payment on a house, etc.) My thinking is that if i try to have different funds for all sorts of stuff (a seperate car savings account, house savings account, etc.), the interest will be on smaller amounts and it'll build wealth slower.

I'm also a big OVERplanner, which is why I'm looking so far ahead down the road for a house, and will be saving for college for years before I even have my first child.

Alexi

PS - I wouldn't worry about lovcom's response. I'm outspokenly opposed to certain lifestyles or careers myself. There are people out there that will ALWAYS try to change someone else. So long as it's said respectfully and I'm not disrespected as a person for my choices (which I dont think lovcom did in his/her post, that person just seems really opposed to the military or how we're being managed or something), I'm not mad and won't be. After all, our country IS founded on having the freedom to speak your mind and have opinions like that, right?

[disneysteve]

the only thing is I'm not quite sure what my goal for saving should be. Who knows what prices houses will be when I'm ready to purchase one in 15ish years. Who knows WHERE I'll want to buy one. Ideally I'd like to buy a house cash, but don't know where my savings will be. I know I'll be able to put a good downpayment.

I would keep in mind the rule of thumb that your house shouldn't cost more than 3 times your income and use that as a general target. With a 15 year timeline, that will be a pretty fuzzy target, of course, but at least it gives you some kind of idea what you might be spending when the time comes.

[kork13]

Alexi -- I'm in the military as well, and very much understand your situation. I have alot of friends that are trying to buy homes and plan to either rent or sell when they move in 4 years. Personally, I'm happy to save up until I find the place I really love and buy it without a huge mortgage to worry about. But, to each his own -- their method is simply more risky and more involved than I prefer.

The simplest way to save for a house, kids' college, retirement, and whatever else you may have plans for is to do it automatically, whether by having it taken directly out of your pay (IMO, this is the easiest way) or with automatic transfers from your bank account. In the end, the biggest factor is this: A GOOD PLAN IS YOUR BEST FRIEND. Decide with your wife how much you want to put towards retirement, home, college, and other savings. Then you can set up pay allotments through your finance office or online at mypay.gov to have it taken directly out of your pay and transferred into your savings/retirement accounts.

Just a couple recommendations -- For retirement, make sure you're fully funding a Roth IRA for yourself and (if she works--you didn't say) for your wife. If you have additional income beyond that, the TSP is also an outstanding option, and again, extremely easy to set up. For college, the Post-9/11 GI Bill is excellent for passing on benefits to spouses or children, so definitely also look into that. For a home, keep VA loans in mind. They're simple, low-cost, easy to qualify for, and have generally competitive rates. Finally, keep in mind that a good education in taxes can really help you out. If your post offers tax education classes, definitely consider taking them. At the least, remember that military bases have free tax preparation services available each year.


@reallyprettyhappy: thanks for going to bat -- some people just don't appreciate the benefits of military service (for both the servicemember and their families), and that's fine. Ignorance isn't punished. As you said, it's very possible to build wealth in the military, because I'm only 23 and doing it already. It's just a matter of being smart with your money.

[creditcardfree]

creditcardfree,
I definitely have started to live below my means. And it's pretty darn easy. Given my raise and promotion, my BAH will easily cover rent, utilities, and probably cable and internet of my next place. Freeing up that much more to pay off bills.

One thing I've been thinking of is after building my 3 - 6 months of giant emergency fund, just lumping pretty much everything else into another "giant" savings fund (other than my Roth IRA) and use that for my major purchases (buying a used car at some point if we need another one, kitchen appliances, repairs, downpayment or payment on a house, etc.) My thinking is that if i try to have different funds for all sorts of stuff (a seperate car savings account, house savings account, etc.), the interest will be on smaller amounts and it'll build wealth slower.

That's good news. The fact that you are an overplanner will help tremendously as well!

I think lumping all the savings together, is fine. You can track seperate goals in an excel sheet, if you want to know how much you have saved for each goal.

Don't discount the fact that you will likely save much more over a 14 year period in stocks or mutual funds. I'd suggest differently if your time horizon were much smaller.

[wincrasher]

I think the biggest mistake you could make right now is to buy a house while you are still moving around with the military. Keep renting and saving/investing until you are going to get out.

Especially in the current market - all the expenses of buying and selling could wipe out any gains you could make. That is, if you can manage any gains - in the current economy, a loss is more likely.