Deciding how to allocate my pay increase

I have just received my newest paycheck with the added 1.9% merit increase. While this number is not impressive, I had been wondering if my new iPhone was my merit increase for 2009. I even thought that maybe I would not see an increase. My boss assures me that the number is not based on my performance but on guidelines from the company. I told her I was happy to see an increase and appreciated what she could give me.

Still nearly 2% means a little more in my paycheck that needs to be distributed. My main financial goal is to increase my contribution to my Roth IRA. To me, my Roth IRA is hedging my bets that taxes will go up in the future when I need to withdraw the money. Since the money is tax-exempt and my 401(k) and rollover IRA are tax-deferred, I think of the Roth IRA making up for the money lost to taxes when withdrawn from my tax-deferred accounts.

However, with the small increase in my salary, I need to figure out how to distribute the addition to my paycheck. It breaks down as follows:

• 90% of my raise goes to Roth IRA contributions bringing my monthly investment to $390.


• 5% of this new money will be a monthly transfer into my future computer fund.


• 2% of the raise goes to my charity savings account once a month.


• 2% of the paycheck increase goes to my farm savings account once monthly.


• the remainder disappears into my checkbook as a small hedge against paycheck fluctuations.

All the money is going to savings accounts and my allocation for spending remains unchanged. Lifestyle inflation is not a good thing especially as I suspect my lifestyle change from suburb and good salary to country existence with fewer job opportunities will drastically decrease my income and ability to spend. My future plans make it even more important to save now so I have more money to buffer me for the future whether I make the transition to the country in three years or five.

Have you decided what to do with your (potential) pay increase?