This quote sits on my desk and reminds me why I work so hard for my raises! Just kidding… sort of…
In my August/September update I mentioned that October 1 is known as “Raise Day” at my firm. Everyone has compensation talks with the partners, and raises for the next fiscal year go into effect. Naturally, some people are really excited on Raise Day, and others are pretty disappointed. This year, I was one of those that was really excited. I got promoted, so my raise was pretty large. I haven’t gotten my first paycheck with the raise yet, but after tax, I think it’s going to come in somewhere around a $700 a month increase in salary.
Since I’ve got this extra money coming in, I needed to decide what to do with it. I can either save it or spend it, but either way I want to know exactly where that raise is going. I don’t want lifestyle inflation to just happen. I want to decide if increasing my spending is something I want, and if it is, what exactly it is that I want to inflate. Basically, I want to put that $700 to the best use possible. I’ve known what I wanted to do with this raise for a few months now, pretty much since I started reading personal finance/financial independence/early retirement blogs. That’s a pretty strong spoiler alert for what I’m doing with it, but it’s always fun to daydream, and play the “what if” game.
What if you got a raise of $700 a month? What would you do with that money? I’ve thought through what I could do, and came up with the following list:
- Nothing, at least not yet. Just let the first couple paychecks roll in. Don’t earmark the money for anything. Just get used to seeing a little bit extra hit your account every month.
- Save/Invest it. Put in an auto transfer exactly equal to your raise amount that transfers the money to your emergency fund or your investment account. Or better yet, have it contributed to your 401(k). You’ll live like you never got a raise right now, but your future self will reap the benefits.
- Make it easier to pursue your passions. Think about the things that you enjoy doing. Do you enjoy learning a new language? Hiking? Playing with your dogs? Woodworking? Think about your passions, and try and see if there is something you can do to make them more enjoyable. Find a language tutor. Buy some new hiking shoes and a Camelbak. Hire a dog trainer or buy some new toys. Take a carpentry class or buy some new tools.
- Free up some time. This kind of goes hand in hand with pursuing your passions. After all, you need time in order to work on things you enjoy. So if you spend all day Sunday cleaning your house, going to the grocery store, dropping off dry cleaning, doing laundry, and cooking food for the week like I do, then explore options for outsourcing those tasks. See if you can find a maid to come and clean. Get your groceries delivered from Amazon Fresh. Have a laundry/dry-cleaning service pick up your clothes, and drop them off all nice and clean. Find someone to prepare batched meals for you.
- Upgrade your living situation. Maybe you live at home, maybe you live in an apartment with a terrible set of roommates or a bad landlord. Maybe you bought a fixer-upper that you haven’t gotten around to fixing up. If your living situation is causing you stress, and you now have the means to change it, then do it. Living somewhere that you can be happy is extremely important. If you’re getting no sleep because your neighbors are terrible, or if you can’t prepare any food at home because your kitchen is a wreck, you’re setting yourself up for failure in every other aspect of your life.
- Travel. After few paychecks, you could easily go on a pretty nice $2,000 vacation. Find some place you’ve always wanted to go to. Whether it’s the other side of the country, or the other side of the world, just get away. Take some time to explore somewhere new. You’ll come back home re-charged and ready to earn that next raise :P.
- Spend it. Originally I wanted to say “waste it,” but I don’t think that’s really fair. People get enjoyment out of all sorts of things. For some people its clothes, for others its cars. Neither of those two things do a whole lot for me, so if I spent my raise on them it’d be wasting it. For you though, it might fall under pursuing your passions. To each his own right? That’s why it’s personal finance.
Like I said above, I already knew what I was going to do with my raise before I even got it, or before I went through my daydreaming exercise above. I made a pledge to be maxing out my 401(k) and IRA in 2017, so that’s what I’m going to do. The raise I got allows me to max out both accounts, without cutting back on anything. I was already maxing out my IRA, but not my 401(k). I was contributing enough to get the full company match, and a couple months ago I started putting a little bit more in. Starting now though, I’ll be able to contribute a full $1,500, a month, or $18,000 a year to my 401(k) and $458, or $5,500 a year to my IRA.
I think I might have a little bit of the raise left over to use on some of the daydreams, but I want to make sure the contributions are working properly for a couple months before I start using it. I know it’s not as exciting as taking an exotic vacation to the Maldives, or even having a maid show up to my house, but it’s what I feel is the best use of that raise. The next raise or bonus I get though, I’ll be going back to daydreaming and I’ll pick some of those items to make a reality.
If you some extra money rolling in every month, what would your daydreams be? Give me some ideas for my next raise!