“That’s it? $60?” My husband’s reaction to his first paycheck of the school year was dramatically different from mine. I was thrilled. Thanks to his graduate classes, he is bringing in an extra $120 after taxes each month. To him, it was such a small amount of money in light of the time, effort, and cost of graduate school. To me, it was pure budgeting joy. What he didn’t realize at first is the fact that it really is possible to make a little raise go a long way.
What We Are Doing Now
Right now, we are spending his raise. To be more accurate, we are currently living off of my husband’s income. And y living off of, I mean spending all of it. When we were a two-income household, we saved more than half of our earnings. The catch? I out-earned him, so when I said sayonara to my paychecks this fall, his income didn’t quite cover all of our expenses. Until this raise happened. That’s right. Thanks to his yearly pay bump plus this raise for graduate coursework, we basically have all of our bills covered if our budget holds up each month. Of course, we have savings, a baby fund, and an emergency fund if things really go south, but right now we’re sitting pretty thanks to that measly $60 he was so unexcited about.
What We Will Do Eventually
When I go back to work in a few short weeks, we’ll take his raise and bank it. In fact, we’ll go back to banking his entire paycheck. Mine won’t be quite up to their normal amount due to a prorated salary for the remainder of the school year, but they should be enough to cover our expenses. So while we may have to spend his raise right now, in a short while, we can put that money in the bank and let compounding do its thing. $1,560 a year doesn’t sound very impressive. But at 4%, 6%, or even 8% over time, it’s much more oooooh-and-aaaaah inducing.
Let’s say Mr. P doesn’t earn any additional raises for the next five years (but don’t say it too loudly because it’s not happening, Mr. P! You crack those textbooks!). By only investing $1,560 each year, he is looking at more than $10,000-$12,000 depending on the rate of return by the time the calendar hits 2021. Feel free to insert the ooooohs and aaaaahs here.
How We Plan to Optimize Future Raises
Keep earning them. If all goes according to plan by the end of this school year, I will have maxed out my salary schedule in terms of graduate hours. That means the only way for me to earn a raise is to wait for the cost of living pay bump that happens each year. Don’t worry, I won’t spend the .8% all in one place. As for Mr. P, though, that means more graduate school for him.
Keep our expenses low. That means continually tracking what we spend, comparing it to our monthly budget, and continuing to slash expenses wherever we can.
Don’t spend them. By banking our money, there’s no temptation to inflate our cost of living. Out of sight, out of mind.
Invest instead. Here’s where I’ve failed in the past. Putting money into savings, even if it is a high yield account, isn’t really doing much in terms of optimization. Whether it’s putting the money in our Roths or tossing it in our taxable account, both options are better than collecting 1.15% in interest.
Invest better. Once we get rolling with two whole incomes again, we are going to get more aggressive with investing that will allow us to reduce our taxable income. It’s no secret that 403(b) and 457 plans are generally bloated with fees, but I think we can actually make some magic happen now that our districts are offering options beyond annuities.
So Tell Me…Have you ever been disappointed in a raise? How do you stretch your extra earnings?