Earning a promotion in the military is a great achievement. We are recognized for our hard work and sacrifices with more responsibility as well as more pay.
A common mantra among Americans is, “If only I made more money I could get out of debt, live in less fear of financial problems, start investing,” or any other financial goal.
However, something funny happens. It appears that the more money we make, the worse our financial position becomes. Why is this?
What We do when We are Promoted:
Last year, my neighbor was promoted to become a Senior Non-Commissioned Officer. As you know, this is a great accomplishment as well as a very nice pay increase.
Like many Soldiers, he had numerous financial issues. His family was drowning in debt and living the paycheck-to-paycheck lifestyle. In fact, he recommended a new credit card to me as a “great” means to overcome debt issues.
Let me tell you, getting into more debt doesn’t help you overcome your financial problems, it only makes them worse. And if someone who is upside down financially is giving you financial advice, it would be in your best interest to get counseling elsewhere.
To celebrate the accomplishment of his promotion, my neighbor when out and bought a new SUV. Now, there was nothing wrong with his old SUV. It worked great, it was only a few years old, and it met the needs of his family. But, he “earned” this new vehicle by obtaining the promotion and bought it to reward himself.
Depending on the years of service, my neighbor’s promotion will bring in over $300 more a month to his family. Unfortunately, the vehicle loan his family acquired would ended up costing him more than $500 a month for the next 5 years.
As a result, his promotion increased the strain on his family’s financial status by about $200 a month. Therefore, he would have been better off financially having not been promoted.
Plan Ahead for Your Next Promotion
Pay increases for the US Army are relatively predictable. From the annual pay increases that occur every January, to the longevity pay increases, as well as promotions.
Although, the higher we ascend in the military ranks, the less certainty we have in knowing exactly when the promotion will occur. But, we do have some knowledge that the promotion is coming.
So what should we do to avoid the cycle of “more money = more problems?”
Assign a purpose for your money before you receive the pay increase.
By doing this, you are telling your money where it goes once you start earning it, instead of compromising our financial life.
Suggestions for Planning on how to Spend your Next Pay Increase
The possibilities are endless on how you could spend your money. Below are a few ideas to consider. The key to planning is to ensure you are not spending more than the increase in your pay.
Maybe your want to improve your financial life by:
– Paying down debts you already have
– Build an Emergency Fund to handle unexpected financial problems
– Invest in an Education Savings Account (ESA) to have money for your children’s college
– Invest in your own retirement with the Thrift Savings Plan (TSP) or Individual Retirement Account (IRA)
– Save for a down payment on a home
– Any other financial goal that meets your family’s needs
Don’t think you must spend it all on increasing your financial standing. You can use the money for fun activities such as:
– A monthly movie night with the family
– Eating out once more per month than previously
– Saving for a family vacation
The point is to budget this pay increase and tell your money where it will go. If you do decide to make a large purchase, like a car, make sure it is something you need, and not just want.
As we observed with my neighbor, buying a new car can hurt you and your family financially. If a new car is something you need, direct the money from your promotion to a savings account. This way, you can build up the funds needed to purchase the car without an increase in financial burdens.
I would like to congratulate those of you who are being promoted. It is always a great day in our military careers to be recognized for our hard work. It is now up to you to become the example to your seniors, peers, and subordinates on how to act responsibly with the change in your military pay.