Military Banking Rates

4 Smart Ways to Spend Your Yearly Pay Raise


Posted in Savings Account

Every year since the era of World War II, members of the Armed Forces have enjoyed a military pay increase on January 1. Despite the fact that year’s raise was the lowest ever recorded, members of the military can put that raise to good use. Because any pay raise is money that was not previously calculated into your monthly budget, dedicating this new found money to a financial goal will positively impact your household’s operations. So, what should you do with your military pay raise, whether it is the annual raise every January or a raise thanks to a promotion?

1. Pay Off Credit Card and Other Debt

Paying off credit card debt or another consumer loan is a great way to spend your new military pay raise. If you pay off a credit card that was charging you 18% interest, that is exactly like earning 18% rate of return from an investment or savings account. Since no banks or even the stock market despite its great run recently are paying those kind of figures, paying off debt with your military pay increase is a great return on your investment.

2. Invest the Raise

Many people try to persuade themselves into believing that they cannot afford to invest money for a financial goal such as retirement, saving for children’s college funds, or even the down payment on a new house. Many of us talk ourselves out of investing despite knowing that the need is there because our budgets are stretched so thin. But, investing a new raise is a great way to get back on track with your retirement funds or other goals. While a 1.4% raise is not typically a huge amount of money, it can add up over the course of a year and throughout several years when combined with other raises. Consider increasing your TSP contributions by 1% this month with your military pay raise instead of just spending it.

3. Build Up your Emergency Fund

Most people do not have an adequate emergency fund saved. I can remember being blown away when I actually added up all of my financial obligations such as my car payment, home mortgage, and insurance premiums and then compared that number to my emergency fund balance. I quickly realized that I did not have enough money set aside to cover my expenses should I lose my job or have some other financial hardship. I didn’t have three months set aside when it came down to it, let alone six months. A pay raise can help you beef up your emergency fund.

4. Increase Your Standard of Living

Finally, use a little bit of your pay raise to enjoy life. You worked hard for your new raise, and you should enjoy the fruits of your labor. Since this last annual raise was 1.4%, you could easily use 1% increasing your investments, savings, or paying off debt and the remainder to eat out an extra night a month or some other pursuit.

While many members of the military have taken the annual pay raise for granted throughout the years, it is a great opportunity to clean your financial house. Using your military pay increase for neglected items like your emergency fund, TSP contributions, and paying off debt will help you continue down the financial path to success or get you back on it.

Hank Coleman is a Captain in the U.S. Army, freelance writer, and the founder of personal finance sites such as Military Money Might and Money Q&A. His writing has been featured on The Motley Fool,, and many others. You can follow him on Twitter at @HankColeman.