Josh Andrews has seen firsthand how important financial planning can be for military members — especially when they suddenly find themselves with more money in their bank accounts.

After graduating from the Air Force Academy as an officer, Andrews said he received three pay raises, as well as a promotion, but realized he’d only been saving the same $50 per month he’d started out with.

“[It’s] because I was spending it,” said Andrews, who is now advice director for USAA.

“And unfortunately that’s kind of the mentality you see in a lot of our young enlisted, or young officers, because they don’t have the [financial] education. And you don’t know what you don’t know.

“In the military, we tend to focus on our mission, our job. Everything else is secondary, and military members tend to think of themselves second.”

Congress approved a 3.1 percent pay increase across the board for military members in 2020 — the largest increase in more than a decade — and it kicked in Jan. 1. Andrews said that extra money, managed responsibly, can help military members work toward financial stability, whether they’re just starting to assess their current debt, or putting the final touches on retirement plans.

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“Pay increases are very important,” Andrews said. “To understand the importance of that pay increase, it’s vital to really understand the financial landscape that our military members and families live in on a daily basis — and there’s some things that may affect them that really don’t affect the average civilian.”

In the annual Blue Star Families Military Family Lifestyle Survey for 2018 — the most recent year with complete results — Andrews noted that spouse employment (or lack thereof), as well as pay and benefits, were two of respondents’ top five concerns.

“They continued to dig down deeper and they found that 13 percent of military families report having difficulty making ends meet, compared to just 7 percent of civilian families,” Andrews said.

The survey also found that of military spouses who work, 56 percent reported being underemployed.

“Meaning because of the frequent moves they have to make, they’re not in a position that is relative to their skill level or education or what they had in their previous job,” Andrews said. “Or, they’re being underpaid or underutilized because of their time within the company. So you add those two together and those pay increases are very, very important.”

Serving in the military comes with some financial advantages: Military members don’t pay local sales taxes when shopping at base exchanges, they receive government health care, and are allocated tax-free allowances for housing [the Basic Allowance for Housing] and to offset the costs of food purchases [the Basic Allowance for Subsistence.]

But those benefits and allowances disappear when a service member decides not to retire in the military.

And most of them don’t; Andrews referred to a recent Department of Defense report that found only about 15 percent of service members retire with the military and receive benefits including health care and a 50 percent pension.

Those who separate prior to retirement often face a difficult transition.

“I can attest to the transition from the military to the civilian side,” Andrews said. “Even though USAA  takes very good care of us here, the health care [cost] in particular was a big shock to me because in the military it’s provided.”

Andrews said back when he was on active duty — he still serves in the Air Force reserves — he had to take his son to an emergency room for treatment. He never got a bill; the care was covered by his military insurance.

But after he left active duty, he had to take his daughter to the ER. This time, despite being well-covered through his USAA insurance, he ended up with a bill for about $2,500.

“Unpaid medical bills are the No. 1 cause of bankruptcy in the United States,” Andrews said. “And now I understand why.”

Andrews has come a long way in managing his finances since he was spending lots and saving little as a young officer coming out of the Air Force Academy — mostly by following the same advice he now gives clients as an advisor for USAA.

In financial planning sessions, USAA generally gives military members seven instructions to better manage their money. In order of priority, they are:

Get adequate insurance protection (auto, home, or umbrella, if needed).

Establish an emergency fund of at least $1,000.

Pay off high interest rate consumer debt.

Start or continue saving for retirement.

Work towards fully funding an emergency fund with 3-6 months of essential living expenses.

Pay off other debt.

Save towards other goal expenses (such as car purchases, down payment on a home, or higher education).

“If they set themselves up in a good financial situation with low debt, a nice savings account that can help provide for their family … it makes that transition smoother,” Andrews said. “And it’s less financial stress.”

While the military pay increase may go a long way to building stability for military families, its impact is usually less dramatic when it comes to the local economy.

Paul Rochette, senior partner with Summit Economics, said in terms of local economic impact, pay raises tend to result in “much ado about not much” after accounting for inflation, and the fact that military members typically spend less of their money off base.

In 2014, Summit studied the Department of Defense’s economic impact on the state of Colorado, the numbers for which were updated in 2018.

Through that study, Rochette found the biggest difference between military income and income in any other sector is that military members spend less of it in the local economy on taxable goods and services, because they can shop at base and post exchanges where purchases are not subject to city and county sales taxes.

And because many in the armed forces live in military housing and don’t pay for health insurance, Rochette said they tend to have more disposable income. But since they shop less frequently at local businesses, their overall impact on the economy, Rochette said, is small and hard to measure, as the money tends to be spent very incrementally across all industries.

“A $50,000 paycheck for a soldier versus a $50,000 paycheck for a civilian — the soldier is going to have more of that available to spend, but will spend less of it in the local economy,” Rochette said.

“I think maybe the safest thing to say is that, roughly, they probably have the same impact when it’s all said and done as anybody else. It’s just structured differently.”