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?

.……nah.

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

 Pre­vi­ous:New: 
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!

 Pre­vi­ous:New:Sav­ings:
Rent:$1,057/$1,749$400$657/$1,349
Util­i­ties:$80$0$80
Food:
$345$345$0
Phone:$37$37$0
Car:
$150$150$0
Inter­net:$70$0$70
Insur­ance (Rent, Health, Car):
$115$115$0
Pet:
$50$50$0
Sup­port:$150$150$0
Total:$2,054/$2,746$1,247$807/$1,499

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!

    • Thanks girl! I would imag­ine any­thing to do with Illi­nois and pub­lic sav­ings options are um, less than ide­al :/

  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

    • Why thank you Miss Mazu­ma! It was a fun year for me for sure! Hav­ing extra mon­ey to play with is so much fun!

  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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