Each year, the military pays out huge amounts of money to individuals who enlist and re-enlist. These bonuses can be as much is $90,000, depending on your specialty and the length of your commitment.
For many people, a military bonus is one of the few times in their lives when they have a check in their hands which is equal to a year or more of salary. This is a very big deal and one to be handled with great caution.
To start, it may be that some of the bonus money is taxable by either the federal government or a state. There may well be a difference between the gross size of your bonus and the net amount that you actually receive. For this reason, when considering a bonus, always ask how much you will actually get after taxes.
But let’s say you do get a very large check. What should you do with the money?
No doubt there will be will many temptations, but it’s best for recipients to think of bonus money in the same way they would think of an inheritance — a one-time deal where the money should be used in a way that will create a long-term benefit.
One use of bonus money could be to pay off credit card bills. Credit card interest rates are notoriously steep, and at some point such debt must be repaid. However, credit card debt is a danger that repayment cannot cure unless individuals also develop a budget and and never get an advance which cannot be repaid within a month.
VA Loans and Your Military Bonus
Bonus money can also be used with real estate. For instance:
- The money can be used to pay closing costs for the purchase of a home.
- Bonus dollars can be used as a down payment. While it’s true that VA mortgages are available with nothing down, with a fixed rate mortgage having a down payment means owing less and therefore having a smaller monthly cost.
- Use bonus money to refinance a property with a VA loan at today’s low rates. Do this to not only to get the benefit of a lower rate or to switch from an adjustable-rate loan product, but also to pay down the mortgage with bonus money. This double-barreled approach will produce much less debt and the benefits which less debt creates.
- One of the best things to do with bonus money is to put some in savings for the time when you will really need more cash than is usually available. Starting college funds for the kids and reducing student debt are also good ways to get the most from your bonus dollars.
Photo courtesy 401 (K) 2012