I Got a Raise! What Should I Do With It?
Earlier this week, my manager informed me that I have been given a raise!!
YEAH!!
This is especially good news as I did not receive one last year. After taxes, I estimate that it will net about $115 per paycheck, or $230 per month. It’s not life changing, but in an environment where I recently watched coworkers get laid off, I’m extremely thankful not only to have a job, but to have been granted a salary increase.
The question now is, what should I do with the extra cash?
My wife and I sat down and evaluated all our major budget buckets to find the best place to apply the new funds.
Entertainment fund increase: Nope. My wife and I both feel we have adequate funds each week for entertaining ourselves, so there’s no need to add any additional funds to this budget bucket.
Groceries / Household items: With a high school freshman and his seemingly bottomless bit of a stomach living in our home, we could use a little bump in our grocery budget. Plus, it would be nice to add another “special†dinner to our meal plan each week. We decided to add $20 a week to this bucket, or $80 a month.
Retirement / Savings : Can you ever over fund these buckets? I’d love to pump them up a little more, but we decided that we have a more pressing need….read on.
Emergency Fund: We have aging vehicles (that we’re trying to make last as long as possible) and many of our appliances are reaching the age where they may be reaching end of life. Pumping up our emergency fund for repairs or even replacement of some items seems like the best place to apply the additional $150 a month.
Did you get a salary increase this year? How are you using the extra cash in your budget?
Brought to you courtesy of Brock
Brock is a software engineer by day and personal finance blogger at night. He is a fitness junkie and enjoys grilling and smoking meat. Married with two children, Brock strives to improve his skills as a husband and father, and is always on the lookout to stretch his family’s budget as far as he can.
Wow, congrats on your raise! That’s so exciting. I love getting extra money for putting in the same amount of work! I would add it to either an emergency fund, straight into a retirement fund, or make a vehicle savings fund as you said you have aging vehicles. I’m glad you aren’t adding it to your entertainment fund 🙂
The only raise we ever get is the cost of living adjustment to hubby’s pension. So, congrats on receiving a nice increase. What we do with any pension COLA usually goes first to increased insurance premiums and then every other year to an increase in our long term care insurance benefit. Anything beyond that goes to real estate tax increases, groceries, etc. Not much to play with but having that pension with sort of annual colas sure beats only getting social security, which neither of us qualify for.
Congrats Brock on the raise. I would invest that money back into your business or place the additional money into a whole life policy that compounds year over and year and pays you a nice dividend as well.
@Daisy – I think the natural tendency when a person gets a raise is to increase the entertainment fund. After all, you’ve worked hard, why can’t you ENJOY it, right? The way I figure it, even though we’re not increasing our entertainment fund, we’re giving ourselves more stability so that we can enjoy our discretionary funds without having to tap it if a crisis arises that our efund cannot cover. Thanks for your support, Daisy!
@Kathy – The interpretation of Cost Of Living increases rarely is in touch with actual reality, as I’m sure you’re aware. If I could pry a bit – why don’t you qualify for social security? Haven’t quite hit the age requirement yet?
@Donny – The whole life insurance idea is an interesting one. We have such a policy – and the return on it (I believe) is better than a savings account. Instead of having our efund in a savings account (which has a paltry interest rate), we could increase the contribution to our policy and earn additional interest. PLUS, if an emergency did occur it is extremely liquid as we could have the funds within 2 business days. Something to think about….
Brock,
Nice job on getting the raise. From your writing its clear that you’re a hardworking guy.
I would say the best thing to do is bank the raise immediately. Adjust your 401k contribution so that you put 100% of the raise into retirement. This way you’ll have the benefits of having your money working for you on the stock market (e.g. compounding and superior returns) as well as the tax deductibility of having a larger 401k contribution.
James
Responding to your question above, I haven’t hit the age requirement yet and hubby is on a federal pension. I would have also gotten a federal pension but left government service before retirement age. I rolled my contributions into an IRA which has done quite well. BTW, you are right about the actuality of colas. The formula is specifically designed to provide very little increase while groceries, gasoline etc keep going up and up.
@James – Thanks for the kind words! My 401K is through my employer and it comes out of my check pre-tax (so no tax deduction) – but I don’t see that as a reason not to do it. My biggest fear is the need for a larger savings / efund due to the aging appliances, etc. As much as I’d like to increase our retirement contributions, we need to prepare for that event that is likely coming up. Thanks for your perspective!
@Kathy – so when you do reach eligibility for SS, will that provide a significant bump for you and your husband?
Depends on what you think is significant. I’ll get about $450 a month at age 62 which I think most people would call significant but it is not near what most people get from SS. Most of my retirement income will be from the aforementioned IRA which we are waiting as long as possible to tap that. We are in the very fortunate position of not needing it yet so it is growing nicely.