Thursday, April 1, 2010
Figuring out what to do with a salary increase
I am quite meticulous about planning what to do with future money. Everything from small bonuses to merit increases are carefully assessed to figure out what best aligns with my financial goals, whether to spend or save. However, there is planning and there is something that blows all projected plans to heck.
Yesterday, I was notified that not only did I receive an annual merit increase but an unexpected promotion as well. Notably, this position change came a further salary increase. Since I was not expecting to be promoted,I was unprepared for the change in my salary. Prior to my notification, I worked on a number of scenarios to figure out how much I could add to my various savings accounts if I received anywhere from 2%-4% increase. (In fact, I felt the high number was too optimistic.) All told, I received a nearly 10% increase in my salary. Therefore, I have some work to do on figuring out how to distribute my new salary.
My first priority was restoring the level of automatic transfers to my various savings accounts (emergency, house and car). This year, we are on a 27 paycheck cycle (rather than the normal 26) that reduced the amount of the individual paycheck but totaled the same salary as a 26 pay periods. The first place I compromised was how much I added to my savings accounts rather than changing my spending levels. Being able to fund my savings at previous levels makes me happier as I can reach the goals I am striving for sooner.
Furthermore, I dedicated more money to my future farm account. I have been considering a second job to add more money to this account so with my new salary increase comes along, I can afford to put more money toward this savings goal. In fact, I am now saving 6.5 times more for my future farm than I could before. I am rather pleased I can advance this goal more rapidly without finding alternative income sources.
Finally, a fraction of this new pay level will go to various spending categories. Most are small increases in the monthly allocation. However, some of my spending categories I felt confined by the numbers I allowed myself. Therefore, I believe a tiny increase in the amount I can spend will be helpful without much lifestyle inflation.
I am a numbers gal so as soon as I learned how much more I would be earning with my salary, I had to figure out what to do with it. I cannot let any money just sit there without determining how I can make use of it. With a plan in place, I feel calmer and more in-control regarding my spending allocations and my savings goals.
How do you handle similar situations?