Servicemembers and their spouses quickly learn that the military lifestyle includes a lot of acronyms and code words. DoD (Department of Defense), MOS (Military Occupational Specialty), Temporary Duty (TDY), Roger, Copy. The list goes on and on.
What military spouses don’t realize is the importance of knowing military financial terms.
There are so many different components to remember and understand that spouses should educate themselves too. Military members completely rely on MyPay to access their earnings, so you should consider setting up a limited access account too.
Below is a list of the must-know financial terms that will help military spouses digest and navigate through all the sections of the Leave and Earnings Statement (LES) and military life.
- Defense Finance and Accounting Service (DFAS): The accounting and financial institution responsible for paying military members, DoD employees and other governmental departments. DFAS is also responsible for retirement pay.
- Basic Allowance for Housing (BAH): The amount given to a service member based on their location, rank and dependent status assessed from the regular housing market on or around the duty station. Formerly called Basic Allowance for Quarters (BAQ), it’s still in LES statements as such, but means the same thing as BAH.
- Cost-of-Living Adjustment (COLA): The taxable amount given to designated families to fund non-housing costs depending on their location to supplement the area’s cost-of-living. Not all duty stations receive it and to find out if your location includes COLA pick your area here: OCONUS (overseas) or CONUS (continental United States)
- Basic Allowance for Sustenance (BAS): The money given to military members to offset the cost of food with all ranks within enlisted or officer getting one set amount unless overseas.
- Family Separation Allowance (FSA): Military members receive this when they are away from their duty station and family for a TDY lasting more than 30 days OR on an unaccompanied tour that brings them to another location.
- Hostile Fire/Imminent Danger Pay (HFP/IDP): It’s mostly given to military members deployed in dangerous situations and is determined on location and/or certified by the commander. Both pay categories are categorized together but still separate, read here for specifics.
- Hardship Duty Pay (HDP): Classified into 3 different categories: location, mission and tempo, it’s given to service members that are assigned to areas that offer lower than standard living conditions depending on the duty.
- Assignment Incentive Pay (AIP): It’s additional pay awarded to military members that have a non-typical duty or or even extended stay. Mostly given to those that volunteer for a particular service.
- Hazardous Duty Incentive Pay (HDIP): Pay given to military members that holds a job considered hazardous like flight crew and/or parachute teams.
- Thrift Savings Plan (TSP): The type of retirement plan given to service members that can be deducted from their pay. Similar to the civilian 401(k), it’s a great way to invest and is encouraged for service members.
- Date of Initial Entry to Military Service (DIEMS): This is the date that you first entered into military service and cannot change. It’s very important in calculating your retirement benefits when it comes time.
- Pay Allotment: Military members can utilize allotments to help with various payments that are required such as loans, rent or outside insurances. The funds are taken away straight from pay and given to the designated institution.
- Federal Insurance Contributions Act (FICA): There are particular deductions that are taken away from military members’ pay, such as Federal Taxes, Social Security and Medicare.
- Servicemember Group Life Insurance (SGLI): The deductions via military members wages that covers life insurance. If servicemembers have dependents, there is a separate deduction for family members. This covers life insurance during time in service.
- Survivor Benefits Plan (SBP): Signing up for a SBP typically happens at retirement and funds are deducted from retirement pay, which gives surviving family members an annuity (a specific amount per month based on the lifespan of the beneficiary) in the event the servicemember cannot receive it anymore.
- Retirement Plan (RET PLAN): Usually, at a minimum of 20 years, servicemembers are granted retirement pay. It should currently be on your LES statement. Depending on your plan of service, there are four different plans that the military can chose from: Final Pay, High-36 Month Average, REDUX and Disability. To decide the best plan, members should seriously consider their military path. This link calls out each plan in more detail: http://militarypay.defense.gov/retirement/.
There are a handful of civilian financial terms that are uncommonly known that you should know outlined below.
- Net Worth: Think of it this way, it’s all your total assets (the money that goes in your pocket plus other investments like if you own a home) minus liabilities (debt and/or overhead costs). The overall wealth of your family.
- FICO score: The FICO score is calculated using the figures from your consumer credit files on: Experian, Equifax, and TransUnion as well as other factors based on your credit habits with your payment history as the number one contributor. That’s why it’s very important to pay bills on time, at it’s minimum and pay it off in a timely manner.
- Interest: It’s a designated percentage based on a figure that is given in a set amount of time typically calculated in savings plans and credit debt.
- Individual Retirement Account (IRA): Separate from a 401(k) or TSP, it’s an account put together by an individual usually via a bank or credit union that saves money for retirement. The funds that are collected are set-up to be tax-free or tax-deferred depended on the type of IRA. There are three types: Traditional, Roth and Rollover. It’s recommended to establish an IRA, especially if having a 401(k)and/or TSP isn’t available. Who wouldn’t love extra money at retirement that offers tax benefits?! Consult your financial adviser.
