This is a guest post by Justin Taylor, from Saving Sherpa.
How to Choose Your Next Duty Station
Choosing your next duty station or even creating a list of potential new homes is possibly the most stressful part of being a military member. For me, on the officer side, I know that I will move every 3-4 years like clockwork and that’s at a junior CGO level. This rate will likely increase towards the end of my career.
So how do you know where you should move or PCS to? My argument here will be that your next duty station could hold the key to upping your Effective Income by over $15,000 per year. This is due to the difference in locality pay also known as Basic Allowance for Housing (BAH).
Why is BAH so Important?
Every zip code has an associated value for your BAH. It’s important to remember that you don’t use the zip code your house will be in but instead use the zip code that your office will be at and in some cases where the nearest base is. BAH is such a beautiful thing because not only is it huge in some areas, it’s also tax-free.
This is part of the reason military members have such low effective tax rates. Currently, 40% of my income is non-taxable because I live in a high BAH city. So instead of paying taxes on my true $91,200 salary, I only pay taxes on $55,000.
The tax difference comes out to be $7k vs $16k owed to the IRS. Another way to look at this is that for every $1 of BAH, you are getting the same worth as about $1.25 of normal income, depending on your tax bracket of course.
Ok, So How Do I Pick My Next Base?
First, I would narrow my list down to areas that are even potential spots for yourself. For some career fields, you may be able to go just about anywhere and for others, you may only have a handful of bases to choose from. Once you have a list, you can go check all the BAH rates over at militaryrates.com. You will probably begin to notice some wide-ranging figures.
For instance, an 0-3 would receive $1083 per month without dependents if you were stationed at Malmstrom AFB in Montana. The same 0-3 stationed at Hanscom AFB in Massachusetts would receive $3063 per month. Your first thought might be that they’re so different because Hanscom is near Boston which is vastly more expensive than Montana.
This is potentially true in some situations but certainly not mine. To make this simpler I want to introduce a term I call Effective Income. Effective Income is the amount of money I receive each month once you take away any location-based costs. This allows you to compare apples to apples.
How Does a Bigger City Affect Your Spending?
Start to nail down which expenses will see increases directly related to the new location. For you, these factors might include childcare, music lessons, or gym memberships and certainly housing. After living in the Boston area for two months, the only area that has increased for me is my rent which increased $225 per month vs. Colorado Springs.
To be fair, I will also estimate another $100 a month towards eating out because Boston doesn’t allow happy hours and dining out is more expensive in general. So if you use me as an example as an 0-2 in both cities, my after-tax income increased from $4994 to $6335 per month after taxes. That’s a difference of $1341.
Now I deduct the $325 increase incurred from additional location-specific costs and I’m left with an Effective Income Increase of $1016 per month or $12,192 per year after taxes while certain ranks and locations could drive a change of over $15k per year.
So just by changing locations, I make over 20% more even though I have the same rank and time in service. Once you’ve identified all expense areas you believe are greatly dependent upon location you can simply subtract those from your total pay at both locations and quickly see which one is the best option for your situation.
You may not get the 20% increase that I did but you may be surprised.
You Can’t Save $1100 out of $1083
My other argument for focusing on BAH when considering your next duty station is that it at least gives you an opportunity. In my personal example, coming from Colorado Springs, the absolute cheapest I could rent a place for was $400.
That was with an old house and roommates but was actually $550 for most of my time there. Even at the best-case scenario my BAH to Rent difference was about $1000. Now in Boston, my BAH to Rent difference is actually $1900.
It’s like the 0-3 in Montana example. Even if you lived under a bridge for free, you’d only be able to save $1083, but at Hanscom, you could spend $1963 a month and still save $1100.
You don’t need to be a mathematician to understand that you would have never been able to save $1100 if you were only getting the $1083 in Montana. So while things may be slightly more expensive in certain cities, those cities at least give you the potential to have a lot of excess money from housing.
How to Go From Theory to Reality
This may seem like one of those topics that are great in theory but aren’t as easy as looking up a city and moving there. I would agree that with the military there are certainly no guarantees on location. However, I strongly believe that most members don’t do everything they could to push themselves towards their base of choice. In the Air Force, we have development plans and access to job openings through the various cycles.
First, locate the type of job you want at a specific location in one of the move cycles before you. Then write your development plan to make it seem like you were made for that job. You may also see some required certifications that will make you competitive for that position. Then reach out through your contacts and leadership to have them try and request you. If you are working it from both ends, you actually have a really high success rate.
Another option is through Special Access jobs that hire on a by name basis. It may take a lot of phone calls but trust me it can be done. If you land one of these jobs you actually can guarantee a job location way before your buddies on the same cycle even have a clue where they’re going. Even if you get the location approved, you may still be skeptical that a large city isn’t that much more expensive than a tiny one.
A Big City Can Actually Be Cheaper
My rent did go up some but my gas usage is actually cut in half due to public transportation, which is free in Boston for military. There are so many free or discounted activities. I’ve already been snowmobiling for $10 through the base, Red Sox games for $10, and free Celtics tickets in my first three months here, and I know they have a lot of great programs throughout the year. There are also plenty of free events that don’t require you to be a military member in these larger cities. These are the type of opportunities that exist when being near a larger city.
Keeping entertained and navigating into the city has actually been easier here than any city I’ve ever lived in and at a lower cost. My groceries haven’t risen either thanks to the Commissary and shopping around for discount grocery stores. USAA didn’t have to raise my insurance being in a high tax state like Massachusetts because my home of residence is still Mississippi. I was once guilty of believing that living in a bigger city would be detrimental to my goals. Now, I understand that I’m making over $12k additional tax-free dollars and these high BAH assignments may be the biggest accelerant to financial freedom. Cities such as this will certainly be at the top of my list going forward.
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Interesting perspective. I wonder how the math works out for those with families.
Kate, thanks for the comment. I’d still suggest doing the math the same way. Take all pay increases from the member and spouse into consideration, subtract all location based increases for the family and see how it compares to other cities. Housing is normally the big ticket item here and with a family that really reduces your flexibility on housing due to family size, school zones, etc. Not everyone will be able to make a ton off this but I think it’s a great tool to use if you’re having trouble deciding between two locations.