housing allowance (BAH) to use it all or not to use it all

[diplomatchick10]

I'm having a hard time whether or not to use all our housing allowance (we're a military family) on the next place we're moving to. I know the simple answer is "well of course, no." Here's the thing...my husband and I have been saving like crazy the past 5 years and have paid off over 50-60% of our student loans, even with me being home with our child the last couple years (and no credit card debt). I worked really hard and used most of my earnings the first two years of marriage to pay off our loans. We're both pretty frugal and have been pretty good with our money. We've also lived in a craphole (ok it wasn't that bad) and government housing. Needless to say, we've haven't been too happy with the homes we've lived in, but we've dealt with it. We've found out we'll be moving again soon and I found a house I love, but it would have us using all BAH (the rent + utilities). I feel like it would be slightly worth it because 1). We will be closer to family which means a lot more visitors 2). I would love to have some playdates for a change at our own place and 3). It would only be for a couple years. The other side of me of course is saying "don't do it" but it might mean sacrificing a nice place to live. My husband would also be able to bike to work (although we have two cars that are completely paid off). Although we do like to travel here and there, we are mostly homebodies. Thoughts? Thanks!

[redbird]

How close is it to the max? Would a really cold winter or hot summer push it up to BAH not covering it? What about if rent increases on year 2? If it's too close, I would be very wary.

Also, as a side question - does military get to keep any leftover money not used from BAH? If you get to keep any leftovers it might be worth looking around for a cheaper place so you have extra money to save or invest.

[Abel]

First, you should be proud that you're making progress on student loan debt and living within your means!

Second, you've still got a ways to go on those student loans. You're still in a hair-on-fire-debt-emergency!

I have been in your shoes in a sense. Made big progress, knock 50% off my debt, suddenly I've unleashed an extra $100 or $200 in my monthly budget from what used to go to payments or stuff I didn't need. And The Thing, whether it's a nicer house/apartment, or new clothes, or whatever material thing suddenly appears like some sweet goddess to take all my newly liberated money and solve my problems. And as I get close, you realize it's a Medusa with snakes everywhere and fangs made of credit cards. Run before it's too late!

With some shopping I guarantee you can find a place that comes a few hundred dollars beneath your BAH budget, still meets your needs, and still allows your husband to bicycle into work. I think location, not amenities should be your primary concern because commuting costs, and costs to do the things you do all the time (errands, groceries, playdates, frolicking with your kids in the park, sitting on a park bench sipping coffee you made at home relishing your financial badassity) will outweigh small differences in housing amenities. Once you've got the location right, get the minimum fanciness that meets your needs, and reap the rewards of your financial maturity.

Consider: if this house you found is a dream, and your husband can bicycle into work, why not sell the second family car that's paid off? Gas / insurance / registration / depreciation / opportunity cost together, that's probably worth $100 a month in operating costs or more even if the car was sitting unused. This could make the "full BAH" house a better financial deal than it seemed before. Ditto if you can walk from this house to your regular activities/errands/shopping.

[ulrichw]

So, based on my research, it appears that the same BAH is paid to you regardless of what you spend on housing, therefore I think the percentage of BAH that the house costs is mostly irrelevant. You should simply consider the BAH as part of your annual income.

Once you're there, the real question is - is it reasonable to spend $X on housing?

That answer would require more information than you've provided, but is one you can probably determine yourself. The kind of things that would go into this are, what are your other expenses? What is your total income (including BAH)? What alternatives are available for housing? What's the trade-off in quality of living vs. dollars?

The BAH is simply what the military thinks you should spend on housing - I would use it as a guideline, but don't use it as a hard number - in certain cases it might even be reasonable to spend more than the BAH on housing.

[Alternatepriorities]

I agree with ulrichw. You should treat the BAH just like the rest of your income. Money is highly fungible and should always be treated as such. A piece of your income being untaxed is just a very nice benefit of serving in the military.

If your husband is really going to bike to work you could spend the extra money on housing and recoup it by not driving nearly as much... I think you should do a full cost calculation including commute for both places and then see if the savings are big enough to warrant the sacrifice in quality. Another example, if you're living someplace you really like will you stay in more/travel less? Those savings should also be included. 

[diplomatchick10]

Your BAH is basically the amount of money you get for housing separate from the amount you make overall (total income). Your BAH changes based on your rank, if you're married, and what area you live in. For example, you will receive more BAH living in California versus living in Tennessee.

[use2betrix]

I've received 700/wk per diem for "housing" for the last 3.5 years. I've never spent remotely close to that. I look at it as income to be used for my best discretion.

[ulrichw]

Your BAH is basically the amount of money you get for housing separate from the amount you make overall (total income). Your BAH changes based on your rank, if you're married, and what area you live in. For example, you will receive more BAH living in California versus living in Tennessee.

Yep - but how it's calculated doesn't really matter to your decision. Just add it into your total income and make the decision like a non-military person would. Trying to spend specifically with the BAH in mind is needlessly constraining yourself. Let me give some examples:
- If your other expenses are unusually low compared to your income, you may choose to spend more than the BAH in exchange for a bump up in quality of life
- If your other expenses are high compared to your income, you may choose to spend significantly below the BAH, and use the excess BAH to offset some of those expenses

In either case, you're treating the BAH like it's part of your overall income - the fact that it came from a different source doesn't matter, since you can spend (or save) it on whatever you want.

BTW: When I'm saying "total income" I'm talking after-tax income. The BAH has leverage there since it is not taxed.

[SwordGuy]

"closer to family" ???

How much closer?

Like next door, around the block, or what?  Because unless we're talking real travel time differences between a 100% BAH house and an 80% BAH house, it sounds like a rationalization to me...

[Abel]

"closer to family" ???

How much closer?

Like next door, around the block, or what?  Because unless we're talking real travel time differences between a 100% BAH house and an 80% BAH house, it sounds like a rationalization to me...

Agreed. Rationalizations like that can be pitfalls. "My husband would be able to bike to work" could also be one of them. Make sure you're doing the right thing for the right reasons - it is so easy with financial matters to self-deceive.

[Villanelle]

Your BAH is basically the amount of money you get for housing separate from the amount you make overall (total income). Your BAH changes based on your rank, if you're married, and what area you live in. For example, you will receive more BAH living in California versus living in Tennessee.

Yes, but there's still no reason to view it as separate money.  Do you look at your grocery bill and compare it to his BAS?  The point is that it doesn't matter if a dollar comes in under a BAH umbrella or a pay umbrella or a special pay umbrella or a BAS umbrella.  It all comes in, and it is interchangeable.

Is there truly, truly nothing in a similar location (so you could have the playdates and visitors, assuming it is a reality that you couldn't have those further out) that costs less but is still decent?  How extensively have you searched?  Are you fairly confident in your utility estimates, based both on what locals actually pay and your knowledge of your usage habits (more or less than average)?

[Dicey]

Pretend someone aced you out of that particular property and keep looking. There's a better fit out there, but you're less likely to find it if you allow this one to obstruct your view. Your future self will thank you for it.

[mdharmandm]

Your BAH is basically the amount of money you get for housing separate from the amount you make overall (total income). Your BAH changes based on your rank, if you're married, and what area you live in. For example, you will receive more BAH living in California versus living in Tennessee.

Yes, but there's still no reason to view it as separate money.  Do you look at your grocery bill and compare it to his BAS?  The point is that it doesn't matter if a dollar comes in under a BAH umbrella or a pay umbrella or a special pay umbrella or a BAS umbrella.  It all comes in, and it is interchangeable.

Is there truly, truly nothing in a similar location (so you could have the playdates and visitors, assuming it is a reality that you couldn't have those further out) that costs less but is still decent?  How extensively have you searched?  Are you fairly confident in your utility estimates, based both on what locals actually pay and your knowledge of your usage habits (more or less than average)?

I think you can view it all as one pot of money coming in, but as diplomatchick10 said, your BAH changes with your rank/time in service. The military is normalizing lifestyle inflation. It assumes that a O-6 should be living in a bigger/nicer house than a E-3. I think it is a slippery slope you probably don't want to go down while you still have some loans.

[lakemom]

Pretend someone aced you out of that particular property and keep looking. There's a better fit out there, but you're less likely to find it if you allow this one to obstruct your view. Your future self will thank you for it.

+1  Unless you are being posted to a remote location with few option there will be something else out there that will be a decent location with a decent home at a better price.  Don't fall into the trap of 'well we can afford it' because that is when lifestyle creep starts in and in a few years (or decades) you wake up and wonder where all your money went.  Hang in there!  You'll find just the right place to make your new home.

[diplomatchick10]

Thanks for the advice everyone! I've decided to keep looking.

[Villanelle]

Your BAH is basically the amount of money you get for housing separate from the amount you make overall (total income). Your BAH changes based on your rank, if you're married, and what area you live in. For example, you will receive more BAH living in California versus living in Tennessee.

Yes, but there's still no reason to view it as separate money.  Do you look at your grocery bill and compare it to his BAS?  The point is that it doesn't matter if a dollar comes in under a BAH umbrella or a pay umbrella or a special pay umbrella or a BAS umbrella.  It all comes in, and it is interchangeable.

Is there truly, truly nothing in a similar location (so you could have the playdates and visitors, assuming it is a reality that you couldn't have those further out) that costs less but is still decent?  How extensively have you searched?  Are you fairly confident in your utility estimates, based both on what locals actually pay and your knowledge of your usage habits (more or less than average)?

I think you can view it all as one pot of money coming in, but as diplomatchick10 said, your BAH changes with your rank/time in service. The military is normalizing lifestyle inflation. It assumes that a O-6 should be living in a bigger/nicer house than a E-3. I think it is a slippery slope you probably don't want to go down while you still have some loans.

It assumes those things, but you don't have to give in to it.  /living in a small 2 bed 1 bath apartment on Senior O BAH.

To be clear, I wasn't saying she should spend all BAH.  Quite the contrary.  I was responding to her assertion that the BAH money was somehow different than other money.  Instead of saying, "I get $2000 in BAH, so that's what I should use as a guideline for rent and utilities", you say, "I have money.  STOP  I should make a housing decision that is very absolute very best use of that money, regardless of what label that money arrives with."