8 things you should do with your Guard or Reserve drill pay

Serving in the National Guard or Reserve has never been easy. Between your family, military career and civilian employer, there's a lot to juggle. If you focus too much on one of your responsibilities, the others could suffer.

According to Military OneSource, a U.S. Department of Defense program that supports service members and their families, more than one in four active-duty service members plan to join the Reserves. There are many reasons to take this step, but one major benefit of life as a military civilian is the Guard or Reserve drill pay.

What is Guard and Reserve drill pay?

Drill pay is part of the total compensation for members of the Guard and Reserve who perform drilling and other training duties. Service members' drill pay depends on their length of service and rank. For training, National Guard and Reserve members normally perform at least one weekend drill each month and two weeks per year of active duty.

8 ways to spend your Guard and Reserve drill pay

When you receive your first drill paycheck, you may be torn over how to best use your money. Here are eight ways you can put Reserve and Guard pay to work.

1. Build emergency and reserve funds.

If you have a fully funded emergency fund, you won't have to reach for your high-interest credit card when faced with an unexpected expense. USAA considers a fully funded emergency fund to have three to six months' worth of living expenses.

Don't get discouraged if you haven't started saving or if that amount seems unattainable. Begin with an initial emergency goal of $1,000. Reaching this first goal gets you in the habit of saving and provides a small buffer for life's unexpected expenses. Once you reach it, you can continue to save.

For inspiration, check out 6 ways to jump start your emergency fund.

For many service members, Guard and Reserve drill pay doesn't replace the civilian pay they might lose while serving — another reason serving their country is a sacrifice. Because war-time deployments typically last between six and 12 months there may be a prolonged income gap.

In addition to your emergency fund, we recommend establishing a reserve fund, which can help reduce financial stress during these times. If you have an income gap, the money in your reserve fund can help you pay your mortgage or unreimbursed travel expenses.

Consider your typical deployment duration and time between deployments to determine how much you should save in a reserve fund. If you expect to earn more during times of military service, you may be able to use your reserve budget to improve your financial situation.

2. Pay down debt.

Life is stressful enough without having to worry about how you're going to pay off high-interest debt. If you're already using the income from your civilian job to cover your expenses and save for the future, Reserve and Guard pay can be your opportunity to pay off high-interest debt like credit cards.

In the past, you may have used credit cards to make it through the month or cover unexpected emergencies. But as a reservist, your drill pay can help you get out of debt so you can use your hard-earned money to fund other goals.

3. Save for your retirement.

A 2021 PricewaterhouseCoopers study shows that Americans approaching retirement have only saved an average of $120,000. This may seem like a hefty lump sum, but that provides a monthly retirement income of less than $1,000 — and that's just over a 15-year period. Even with Social Security added, your savings might not be enough to pay all the bills and live the lifestyle you and your family desire.

Guard and Reserve pay can provide extra funds for your retirement account.

Because funding your retirement is so important, consider maximizing all your opportunities to save. Military members under the Blended Retirement System should take advantage of automatic and matching contributions, which is essentially free money.

If you're also contributing to a civilian 401(k), make sure to not overcontribute. Since your contributions are managed in different locations, it can be easy to overcontribute if you don't track them carefully. Synchronize your TSP and civilian retirement plan contributions. If you contribute above the legally permitted limit, you'll face taxes on the excess amount.

4. Pay off medical bills.

If you have TRICARE Reserve Select, it's likely those bills are relatively small. However, if you're covered under a civilian health care plan rather than TRICARE Reserve Select, those costs can be much higher. The average family deductible for employer-based health insurance plans is $3,868, according to 2021 research by the Kaiser-Family Foundation. The catastrophic cap, or maximum out-of-pocket limit, for these plans can be much higher.

If you have medical bills, consider using Guard and Reserve earnings to pay them off. And if you're eligible for TRICARE Reserve Select but aren't sure if you should go with it over a civilian plan, read How to choose between TRICARE Reserve select and civilian health insurance, which will give you the information you need to make a decision.

5. Pay down your auto loan.

If your income is sufficient to cover your expenses, including saving for your future, and you still have money left over, consider funneling Guard or Reserve drill pay toward your auto loan.

Paying off your car early can free up cash flow to put toward other goals. Plus when you eventually separate or retire as a reservist, you'll be able to enter that period of your life without this additional debt.

6. Start an education fund for your children.

Many of us find ourselves wondering whether we should save for our children's education now or funnel extra money into our retirement funds. Eventually, when college bills begin to roll in, we may feel pressure to reduce our retirement contributions in order to pay tuition bills.

Guard and Reserve drill pay can make it easier to plan for college and retirement. For those who didn't transfer their Post 9/11 GI Bill benefits to their children, extra income from drilling can help pay for college, while not putting a pause on retirement savings.

If you want to pay or help pay for your kids' college education expenses and aren't exactly sure how to do that, check out 5 ways to pay for college.

7. Make home improvements.

Not only is your home your sanctuary, but it's probably one of your most valuable assets. Taking care of it makes it more comfortable for you, and it boosts resale value if you ever decide to move.

When it comes to home improvement projects, not all are created equal. Consider prioritizing budget-friendly kitchen and bathroom remodels, and roof and window upgrades, to add the most value. Use Guard and Reserve pay to make upgrades over time so you don't have to go into debt.

For more information on the importance of your home's value, check out What your home is worth — and why it matters.

8. Add to or build a family vacation fund.

Guard and Reserve earnings should be used for more than just paying off debt. Research shows the majority of service members' stress comes from their obligation to spend time away from family. And it goes both ways. Families who are left behind often feel overwhelmed, worried and lonely.

To reduce this stress, budget some of your drill pay to spend time with your family. Go on a small weekend vacation, visit that nice restaurant you've always wanted to try, or spend a day being a tourist in your own city.

Don't go overboard or into debt. After all, the last thing you want to do is add financial stress to your list of worries. But if you follow the first seven things on this list, there's no reason you can't indulge in a little fun. You earned it.