Editor's note: This is the fourth installment of New Year, New You, a weeklong look at your financial health headed into 2025.
With many U.S. service members set to pocket their biggest military pay raise since President Ronald Reagan gave some troops a 16.5% increase in 1982, they now face an important choice: They can just spend their raise right away, or they can be disciplined in the way that they manage it.
Most service members started collecting 4.5% more in basic pay Jan. 1 and will see that reflected in their January paychecks. The biggest raise in decades is going to junior enlisted service members in the ranks of E-1 to E-4, who will receive the balance of their full 14.5% pay raise starting in April.
While some service members may need that money just to meet basic needs -- part of the reason Congress granted them such an unusually large percentage in the first place -- others may have "no excuse" not to set aside a solid chunk of their pay, according to Michael Meese, president of the nonprofit American Armed Forces Mutual Aid Association and a retired Army brigadier general who previously taught economics while head of the Department of Social Sciences at the U.S. Military Academy at West Point.
Being strategic with the increase can help service members stay out of predatory situations -- "you're not going to do a payday loan at 36%," as Meese put it -- while also keeping them from going into any unnecessary debt for things such as vacations or cars. Instead, they save the money ahead of time.
Here's Meese's advice on what service members should do with their 2025 windfall:
First Things First: Dig Out of Debt
The welcome addition to their pay could provide the opportunity some service members need to pay off high-interest, credit-card debt.
With the 14.5% raise, junior troops will earn about $3,000 to $6,000 more per year. Once their full raise kicks in, they could start to apply hundreds of dollars a month to unloading debt.
"If they spent a lot of money at Christmas," Meese said, "they should pay that down so they're not paying that off over months."
Next, Start a Comprehensive Savings Program
Troops might as well aim to set aside 10% of their pay in savings, probably a combination of short and long term, Meese said, depending on individual circumstances.
"If they only put in 8%, that's great, but that's what I would set as an objective -- once they are out of debt -- is to save 10% of it," he said.
Some suggestions for comprehensive savings programs for troops:
Blended Retirement System: Many troops may already be saving 5% of their pay for retirement since that's how much the military's Blended Retirement System matches dollar for dollar.
Service members "need to be putting in the full 5% so they maximize the match from the government," Meese said. "That is literally free money. It's like a 401(k). If they're not putting in the full 5%, they should be so that they can get the full government match."
Emergency Fund: Imagine an emergency fund as a service member's first line of defense against debt. Meese suggested that for junior troops, that might only mean $5,000-$10,000. "If you have an emergency -- a car breaks down, a loved one dies and you've got to fly home ... you want to be able to save for that and not put that on credit cards," he said.
Near-Term Large Expenses: Next, start setting aside money for upcoming expenses, Meese said. That might mean "next year's Christmas spending, or you're going to take a big vacation in the summer," he said. You might have a move coming up. "Once all that is paid for, then you start saving for the longer-term stuff," he said.
Long-Term Savings: Meese considers the "longer-term stuff" to be kids' college savings, followed by retirement. "Because they have the Blended Retirement System," he said, "for junior enlisted, I'm not as worried about their retirement. I'm worried about their next car or their kids' college education ... so that they don't go into debt when they have those kinds of things."
Finally, Put It All Together
Meese pointed out that new digital tools provide today's service members advantages in terms of convenience and of comparing financial institutions.
Financial aggregators such as Intuit's Mint or Yodlee, for example, let users manage their financial accounts from a single app "so that you can see what's going on and keep track of things," he said.
Comparison-shopping for a savings account has also gotten easier, with many websites listing the current rates -- and for now, "savings rates are pretty high, between 3% and 4.5%," Meese added.
So don't just let your emergency fund sit in your checking out. By making sure the money goes into a literal savings account, "you're making money on your savings."
Previous parts in this series:
Part 1: 2025 Guide to Pay and Allowances for Military Service Members, Veterans and Retirees
Part 2: What to Look for on Your January Leave and Earnings Statement
Part 3: Investing for Junior Troops: A Guide to Making Your Money Multiply
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