What Do I Do After A Raise?

Have you ever had a job where your salary is enough to meet your needs? Have you gotten a raise because you're awesome…. and then had no idea what to do with all that extra money?

I'm in this exact boat after I got my new job. It came with a hefty 10% raise! My previous salary was more than enough to meet my basic needs and then some…….. and now they're giving me more!? To do a job I love? Ultimate win!

Now, this post assumes you have no debt. If you do have some debt, that's fine as long as you're actively working to pay it off or have a justified reason to pay it off slowly (very low interest rates or opportunity costs come to mind). If you're actively working on paying off your debt, funnel your raise straight into the debt to accelerate the payoff time and save some dineros on interest.

The answer is a bit more complicated if you do have some debt that you don't want to pay off early – like a mortgage or .05% car loan. If you're not already maxing out all of your pre-tax retirement accounts, bump up your contributions equivalent to the amount of your raise. That way, you're saving more but your paycheck will still be roughly the same. This is also an excellent way to avoid lifestyle creep. You can't spend the extra money coming in if you can't see it!

I'm at the point where I'm maxing my 401(k) and Roth IRA, but I haven't yet maxed out my HSA. My first order of business was to bump up my HSA contributions to max that out. $3,400/12 = $283.33 per month, or $141.66/check. I set that during the open enrollment window, so I am all set to max that out. I didn't even have to do the math on that one – my employer offered a handy button that calculated it out for you! I expect my company to put in some money (last year was $700), but maybe not as much as last year due to current economic conditions.

So, I've got no debt, I'm maxing out my retirement accounts, and I still have money left over. What am I going to do ?

Trip to the Bahamas? Maybe a new car? How about a shopping spree in New York?


Most of the leftover money will be going towards my house down payment fund. The more money I can save up before I start looking, the more options I have. I will be getting a VA Loan so I don't have to do 20% down, and my company will be covering the closing costs if I use their network of people.

The rest of it will go into a savings account to save up for a new car. My car is 12 years old, has over 150k miles, and is still running great; but I would like to be prepared for the future in which it dies or gets murdered in a horribly graphic accident.

The Numbers

Monthly Salary:$5,810$6,391
Annual Salary:$69,720$76,692
Est. Monthly Taxes:$1,180$1,300

That 10% raise translates directly into $500 extra a month (before taxes). So it'd be easy to say, oh, $400 goes into the house fund, and $100 into the car fund. Done.

But, since I'm also moving, that means I need to take a closer look at my budget and see if it needs any revising. As a matter of fact, my budget needs a LOT of revision! I've been tracking my monthly spending for the last three years, so I will be using real numbers in my budget. If you don't track your spending, start immediately! I use Mint.com and a spreadsheet to track my budget, but others find Personal Capital or YNAB fits them better. Whatever works best for you!

Insurance (Rent, Health, Car):

Bottom line, I'll have at least an extra $800 in my pocket a month to blow on hookers and cocaine to allocate to savings. If you include the [ridiculously] inflated rent I was paying the last month on my last lease, I'll have $1,500 to save! For these purposes, I'm going to use the $800.

So, each month on the first, I pay my rent and phone bill. Maybe buy some more food, maybe fill the car up with gas. My first paycheck of the month comes in. Buy some more stuff, pay off my credit card bill. My second paycheck comes in. I have $800 extra in my account. $500 of that will be transferred to my house down payment fund. $300 will go into my new car fund. These are also the absolute minimum numbers I'll be transferring over. I am thinking I will be able to save much more than that (in addition to maxing out all the retirement accounts), especially since I will be getting a bit of money during Christmas and I won't have to buy anyone any more presents for a while.

It will take a while to save up any significant amount, but I would rather be paying myself money proactively than pay someone else for it with interest. My house down payment fund will be boosted by my bonus check and what is leftover from when I tried to buy a house in the spring.

So there you have it – how to put a raise to good use!

How do you put your raises to good use? What's been your best raise in your career?

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39 thoughts on “What Do I Do After A Raise?

  1. Your new rent is only $400? With no roommates? Awesome! Can’t wait to get out of spendy California. 😀

    If it was me, I would just throw it into my investment portfolio – not too different from what you ar doing in the form of a down payment fund. That’s what I did when I went from $52k to $57k. =)

    When my income unexpectedly ramped up from $57k to $76k I increased my charitable giving monetarily quite a bit.

    At that point, I knew that the vast majority of people were worse off than me, and I was already buying whatever I wanted and saving a ton, so it seemed like the right thing to do.

    I also banked all bonuses.
    TJ recently posted…Consider a Co-Op in Early RetirementMy Profile

  2. Congrats on the new job and the raise!!!

    I had a pretty big roller coaster ride once I started getting raises after college. On my first raise, we hadn’t started living frugally yet, so I blew that raise on nice appliances, clothes, etc. However, once a huuuuge raise came along for my current job, we started cutting expenses like crazy. We realized the income increase meant we could double-down on our debt-repayment efforts, and it’s been awesome!

    There’s always the temptation to spend more money once you have more money, but that mindset will only get you into trouble.
    Mrs. Picky Pincher recently posted…What A Frugal Weekend!My Profile

    • Thanks! I’m loving the job so far!

      I started looking at all the things I could “afford” with this new money. I had to exit Amazon and Southwest.com before I did something I regretted! Ha!

  3. Fantastic! After my husband finished his masters, he got a little pay bump on top of a 2% increase! I don’t quite get a 1% increase every year, but we just pushed it all into savings. We’re split between investing (Roth and taxable) and paying off our mortgage. I plan on getting my -ish together eventually to figure out our 403(b)s, but the obvious options are so fee-laden. Right now, we’re pretty pleased with ourselves. Sounds like you should be more than pretty pleased! Congrats on all your hard work paying off. Woohoo!

  4. When I first got a “real job” after grad school, I had a a lot of deferred spending (some of it necessary, some of it not). Let’s just say I bought a lot of shoes. Thankfully that tapered off after a year or so and I started to really focus on accelerating my debt pay-down and paying off my car early. Early in my career, we were still having pay freezes after the recession, so my raises were fairly paltry. By the time I got a promotion and started getting “real” raises (more than 1%), I had learned about FI and was able to start hiding that money from myself by contributing extra to my 403b. Now that I’ve maxed out my 403b contribution, I’m going to have to be mindful that any future raises don’t go towards junk!

    • I’ve found I can make myself do stuff if I have a defined place to put it. Just forcing myself to save money without putting it some where else is way harder!

    • As chintzy as this sounds, I consider the charitable donation last month my splurge. It made me feel great and I don’t need anything else for myself. Especially with Christmas coming right around the corner! Oh wait – consider my trip to Florida for Camp Mustache SE in January my splurge. I’ll buy myself some nice alcohol while I’m there 🙂

      As for the savings account, yes, I have a high (er) interest account at my online bank.

  5. I’m so happy for you! Good work on beating the trap of lifestyle inflation (aka Hookers and Blow)

    For myself my raises let me put more aside for saving since I’m not at that high of a salary yet. I’m hoping that the new year will give me an upward bump! At this point my RRSP is in dire need of some filling, actually it needs to be opened all together! I’d like to be able to put some money aside in there to get a nice chunk back as a tax return.

    • After I finish saving for the down payment I’ll look into the robo advisors. So far I haven’t found them to be anything worth getting excited over (yet).

  6. Great way to allocate your bonus, Gwen! Impressive work maximizing all your tax advantaged accounts. That was always my first priority and then once I had them maxed, I started loading up my taxable account which could be used for many purposes including an emergency fund, funds for a home down payment (we ended up going with 10% down), buying a new car (ours were getting old too and we just pulled the trigger last year, although we chose to take advantage of the super low interest rates for a loan) and also for an investment in a small business which I did a few months ago. It’s great having those funds ready and available for anything, but also earning a good return.

    Good luck with the upcoming move!
    The Green Swan recently posted…Buying Solar Panels: Year 1 ReviewMy Profile

    • I suppose eventually I will reach the point of investing my “______” fund but right now I want to leave it in a high interest savings account.

      As for the move, it’s done and over with. My focus now is unpacking a million and 3 boxes.

  7. Congrats on the new job and the raise! How awesome. Your plan sounds on-point. I recently took another look at my income and savings (since it fluctuates every month) and decided how to divvy it up. Once I get my student loans paid off, I’m maxing out my IRA next year, and putting more money in my down payment fund. I don’t have a concrete goal for what I want to save more toward (more or less going with the flow next year), but I’d like to do some traveling, so that’s a priority along with a house/rental property and car repair fund.

    As far as the best raise, the only raise I really got was at my second job ever – I got promoted from receptionist to something slightly more important and received $2 more an hour, ha. But being self-employed and setting my own rates has made the biggest difference. I make double what I made when I left my last office job.
    Erin @ Journey to Saving recently posted…The Benefits of Creating a Money Management SystemMy Profile

  8. Congrats on the raise. I think your plan for it is great. This year my raise and bonus went to killing my last small student loan and then the rest went into my brokerage account of low cost index funds – exciting stuff!

    One little comment is that the $3,400 HSA limit is for total contributions, including employer. So if they put in $500, make sure to ratchet your contributions down to $2,900.
    Fervent Finance recently posted…2016 Year in Review & 2017 GoalsMy Profile

    • Thanks FF! Great job on killing the student loan!

      I’m unsure if my employer will put money in my HSA this year, so I put in the full amount just in case. If they do put in money, the contributions will just max it out early then (as it’s a lump sum at the beginning of the year, not matched through the year).

  9. CONGRATS on the raise and lowering the expenses! Saving for a down payment is a great plan…can’t wait to follow along on the real estate investing journey!

    We try to save any raises and bonuses that come our way. This year, we’ll also be adding to our real estate investing fund as much as possible. We’ve started searching for our first property, but it may take a while.

  10. Congrats on the raise and boy rent is looking good despite living down in the basement. It would cost over $1k if you were in a basement suite in Vancouver. I think your plan sounds pretty good. 🙂

  11. Woot woot more money!

    Hey, this is utterly selfish but also I think it might be valuable for the demographic you’re focusing on… I’d love to get more breakdowns of life choices vs. long term health. I’m considering moving next to headquarters (there are decent apartments across the street), partially for lack of needing to drive, partially for convenience of walking, partially to feed the husband at discount rates (he eats one meal here and is done for the day), and a lot because we have a massive 24-hour gym in-house and walking distance would get me here at times the one solitary power rack isn’t full of people already. But the apartments are higher priced than we’ve paid so far (granted, rents have been rising), there are cheaper apartments farther away, and we might have to downgrade floor space to get something that doesn’t pain me to pay.

    Some of your decisions on health/life satisfaction items vs. savings would be interesting, or maybe a case study series.

    • Definitely a great idea! I can use my previous two moves for jobs to do a baseline. If you’d like to write up a post on the numbers and reasoning behind the location of your apartment, I’d be happy to include it!

  12. I get a pretty good pay bump each year and it goes straight to savings. Some of that savings is my emergency fund (3 months living expenses), some goes for a down payment on a new rental property (can you believe they want 30% down?!?!?), and a portion goes to investment accounts. I max out my 401K (as much as I can due to the IRS’ highly compensated employees rule) and my IRA. I figure, if I have been living on what I’m making each year, why not just save the extra?

    • 30% is crazy! My first property I will be buying as a residence so I don’t have rhat issue yet! Great job on saving so much!!

  13. Girl, with the new job, house, and raise you are killing 2016!! Good for you!! I think your allocations are spot on. I have a big retro pay type bonus on the horizon for January. I decided to throw it all at my Roth and get that puppy maxed at the beginning of the year. I know I know, DCA is a better way to invest. But I don’t care! I will be happy to up my 401k game monthly instead. 🙂 It’s fun to have money isn’t it!
    Miss Mazuma recently posted…Money & Morals – Using Your $$ For GoodMy Profile

  14. First off congrats on the pay raise. That’s awesome news!!! Second off you sound like you are being incredibly wise with how you are allocating your raise.

    Honestly when I was in your situation I would have done something similar. I too set up goals and strived to max out my IRA and 401k plans before I did anything else. I wasn’t familiar with HSA’s at the time so you definitely have me beat 🙂

    Thanks for sharing your story!!!
    Mustard Seed Money recently posted…How Do You Celebrate Your Birthday?My Profile

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