This guest post comes from Spencer of Military Money Manual.
This year I deployed for the first time with my squadron to a location in Southwest Asia. It was quite an adventure. I had a lot to learn about accomplishing our mission out there as well as all the opportunities for financial and personal growth while deployed.
I soon realized that deployment can be one of the most financially beneficial events in a young soldier’s, sailor’s, marine’s, or airman’s life. Deployment allows you to accomplish the two most important aspects of personal finance:
1) Minimize your expenses
2) Maximize your income
While I deployed, my expenses dropped to near zero. All my meals were provided courtesy of Uncle Sam. I didn’t need to fill my car with gas once a week. There was plenty of free entertainment to be found on base, when I wasn’t working 20 hour days. I couldn’t just drive to the shopping mall to blow my paycheck on the latest iGadget. While there were bazaars at all the major large bases, counterfeit Beats headphones didn’t really appeal to me!
Deployment automatically boosts your pay in many ways. Most importantly, there is the Combat Zone Tax Exclusion, which means you pay no income tax on your pay in any month you’re deployed to a designated combat zone. You’ll still pay Social Security (FICA) and Medicare taxes. This can be a HUGE boost in pay, probably on the order of 10-15% per month, depending on what tax bracket you’re in.
There are also several other special pays like family separation ($250/month), hardship duty ($100/month), hostile fire pay ($225/month), and of course your $3.50 per diem, which you may qualify for depending on your deployed location. While $3.50 per day may not seem like much, when you add it to your other special pays it can really add up over a 4-12 month deployment.
This extra income and lowered expenses creates an amazing opportunity for you. Think about it: if you’re deployed for several months, you could:
1) Pay off an enormous amount of debt
2) Establish an emergency fund to deal with all the uncertainties of a military life
3) Save for a deposit on a home
4) Start investing in your Roth TSP (Thrift Savings Plan, the military version of the 401k) or Roth IRA
Take any of your personal finance goals and strap a rocket to them. That’s how fast you can achieve your goals when you’re maximizing your pay and minimizing your expenses.
A deployment offers an incredible opportunity to establish a firm financial foothold. Here’s how I seized the opportunity to save and invest while I deployed:
How I Saved Money on Deployment
One of the first things I did was suspend as many monthly services as I could think of. My big three were cell phones, internet, and auto insurance.
Almost all cell phone providers in the US allow military servicemembers to suspend their cell service while they are deployed. All it took for me to get T-Mobile to suspend my service was a 5 minute phone call to their customer service department. If you have a standard two year contract, usually your contract is extended for as many months as you suspend. Our cell phone bill dropped from $80 per month to a $10 monthly maintenance charge. $70/month saved.
When I called my internet service provider and explained I was deploying, they offered me a “vacation package” which would cut my bill from $40/month to $10/month. If you have cable or satellite TV, make sure you call them as well to suspend your service. $30/month saved.
A quick call to USAA’s 24/7 deployment hotline (1-877-233-7569) on a Sunday afternoon mere hours before I deployed was all it took to save money on my auto insurance. My car was going into storage and wasn’t going to be driven while I was deployed. If you have other vehicles like a motorcycle, remember to suspend your insurance on them too! $41/month saved.
If you rent, which is probably an excellent choice given the irregularity of military life, you can break your lease for your deployment under the provisions of the Servicemembers Civil Relief Act (SCRA). Simply provide your landlord with 30 days written notice of your lease termination and a copy of your deployment orders and you’ll be able to terminate your lease early without penalty. You will also still collect BAH (Basic Allowance for Housing) while deployed, but instead of turning that money over to your landlord, you get to save and invest it!
One more way I found to save money while deployed was going on a spending freeze. Many deployed locations have restaurants, bars, and shops available for dining, drinking, and shopping. Additionally, there’s always Amazon or other online retailers where you can get your spending fix.
Instead of buying pizza, beer, and souvenirs, I tried to see how many days I could go without spending any money while I was deployed. At one point I was up to 5 weeks without having opened my wallet. Of course I did eventually get a few trinkets to take home and enjoyed some beers with my buddies, but by taking advantage of the low cost environment I was living in, I managed to cut my discretionary spending by 90%!
Invest Your Savings
So now that I was saving thousands of dollars per month, I had to find something to invest all those savings in. There are three unique investment opportunities available to deployed military servicemembers:
1) The Savings Deposit Program
2) Tax Free Roth IRA contributions
3) Tax Free Roth TSP contributions
Savings Deposit Program
The best savings and investment vehicle available ONLY to deployed military servicemembers is the SDP or Savings Deposit Program. This is a special program offered through the Department of Defense to encourage savings for deployed military members.
You can deposit up to $10,000 into your SDP account. Any money collects 10% annualized interest which is deposited monthly. A guaranteed 10% return is unheard of. Most of the civilian readers of GRS would love to have the opportunity to invest in such a program. Take advantage of this program while you can. You can get more details about the SDP here.
Tax Free Roth IRA and Roth TSP
Because your income is not subject to income tax while you are in a combat zone, you have a unique opportunity to invest in your Roth IRA or Roth TSP retirement programs tax free for life. Roth retirement vehicles are designed by the IRS so you pay taxes now and then withdraw all earnings and contributions tax free in retirement (usually after age 59 ½).
If your income is untaxed while you are deployed, you can contribute to your individual retirement account (Roth IRA) and your employer sponsored retirement account (Roth TSP) tax free and then withdraw the contributions and the earnings tax free in retirement. This is a powerful tax savings tool that every deployed servicemember should take advantage of.
While I was deployed I ensured that I deposited $10,000 into my SDP account to start earning that 10% interest as soon as possible. Then, I turned my attention to maxing out my Roth IRA and I continued to make regular contributions to my Roth TSP.
In the first 60 days of my deployment, I managed to increase my savings by $4000 and pay off $5000 of student loan debt. I maxed out my SDP and am well on my way to maxing out my Roth IRA. I retired one student loan that I had been carrying since 2010 which freed up $471 per month in payments. My wife and I could not have been happier with the saving and debt repayment progress we made.
If you go into your deployment with similar goals to set yourself up for financial success, you’ll be amazed at what you can achieve. A deployment can be your best opportunity to set yourself up for a lifetime of debt freedom, strong saving habits, and financial independence. Go get it!