“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.
These ooh-and-aah money charts are from Nerd Wallet’s Compound Interest Calculator. Check it out 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?
Congrats to you both! I’m glad that this raise means that you’ll be able to cover more of your expenses without dipping into savings. I’m sure that’s a huge weight off.
I do understand Mr P’s displeasure with the small amount. I just got promoted at my job and got a raise that seemed great, until they told me that I now need to be on-call sometimes. For that, I need to have a car and they would like me to quit my part-time job. The raise doesn’t cover the difference if I quit my part-time job and then to add the cost of a car on?! I was more than slightly disappointed when they told me that. However, my part-time job is in retail, so I can ramp up those hours for the next couple of months (the holidays are coming!) while I get my feet under me at my current job, which will hopefully mean that I can afford the things my new job wants and get myself in a good enough financial place to bank that raise.
Yes! I will receive a small raise this month, €80 (about $95). We are currently saving around 40% of our income and because of our high savings each month this feels so insignificant and like it doesn’t really make a difference.
I don’t like my own lack of gratitude about this though, so if I would like to change my attitude about it. Maybe looking at how much this is in 5 years will help me feel better about it.
Every little bit counts!! Great job in preparing to bank the raise when you go back to work! This year, we’ve had so many expenses that we haven’t saved Mr. ThreeYear’s raise, and it’s bumming me out, but by December, I hope we’ve got our big expenses paid for and our emergency fund back up so we can save save save (I mean, invest, invest, invest). I’m currently working on finishing my Master’s, and since I’m a contractor, I’m going to increase my hourly rate as much as I can… there’s no salary schedule but there is a market, so I’ve got to discretely ask my colleagues what they charge with a Master’s degree per hour!
Yay for the raise! Mr. Picky Pincher got a $200/mo raise and I was more thrilled about it than he was. He also had a “That’s it?” moment, but to me, any money we weren’t making before is good money. 🙂
Banked raises for 20 years . . . speaking from experience, it works! ;).
Living on half of your income creates opportunities that most people only dream of (like staying home with the baby for a few months and still making ends meet). That is truly the key. Banking raises, or at minimum, waiting for raises before incurring additional expenses (while keeping an eye peeled for our old nemesis Hedonic Adaptation) has served the Oldster family for years.
When I started my first job out of university, I was promised a raise with my job offer. Of course, after my 3 month probation period ended, there was no such raise. I was so disappointed because the start salary was already really low ($28k) considering I was managing my own department. I ended up getting a second, part time job with the same company in order to make ends meet. But working 60 hours a week for a boss that already undervalues you is absolutely not the way to do it!
No matter how good a raise is, it always looks smaller when you break it down into one paycheck’s after-tax worth. I think it’s natural to have a “that’s it?” moment, but just remember, that raise will keep coming paycheck after paycheck. And of course if you invest it, then it will be ooh and ahh worthy! There have been times in my life when my raises were completely wasted, but these days any increase I get is carefully budgeted. I’m glad to hear that Mr. P’s raise will help you cover all your bills for now, and get banked later.
You’re right, Gary! I don’t normally share posts with him, but I told him about this one. Hopefully his “that’s it?” moment has passed!
Yes and no – I’m always happy to get a raise, no matter how tiny, but I also feel simultaneously that it should have been at least quadruple that amount 🙂 But since I arguably feel that way even when the raise is a good one, I’ve learned to live with it and stretch every penny til it squeaks 🙂
Here’s to penny stretching, Revanche!
Woo! It is so great that you guys can now cover your expenses just with your husband’s income. I don’t know about you, but it makes me feel much calmer about things knowing that we can live on one income. Before my husband’s raises this year, we unfortunately weren’t breaking even on his paychecks after maxing out his 401(k). I found that to be quite ridiculous considering his income level and our affordable housing bill… Now though with his promotion, there is room for post tax savings and covering all of the household expenses, which is much better. We are planning on a more low key 2018 which should help with the budgetary anxieties 😉
It IS an amazing feeling. Before this leave, we were always pretty excited about saving half our income. Since we didn’t have the same income, though, this leave was a little unnerving.
I used to always think that when I got a raise, so did Uncle Sam… But if I invest that money pre-tax, I don’t see any extra coming in or going into govt coffers, but it’s all there compounding its little heart out in my 457(b). I’ve finally got the monthly amount that will equate to the annual max of 18k! And my traditional IRA got topped off on tax day (I really got a nerdy kick out of that!)
Yes! That’s brilliant. We are basically using this time to test out how much we actually need from month to month. Then when I go back to getting a check, we are going to open 403bs. The fees are still a bit high, but doing nothing is really, really stupid. I can only use the fee excuse for so long.
My school puts faculty on a calendar year salary schedule, so my last paycheck actually saw a decrease in pay. It’s because Illinois just raised state taxes (which I don’t mind) and the increased withholding happened to begin with the school year. I only throw this out because if Mr. P did not get the graduate school salary bump, he might be experiencing what feels like a salary cut, like me. I’m not complaining (I like it when my state actually has a budget), just explaining that the $60 is great, especially considering if he hadn’t done the extra work, his annual raise might have amounted to zero. I’m excited for your raise. Congratulations!
That’s actually a great point, Marta! We are Illinoisans, too. (And yes, I had to look that up.) Here’s hoping this budget pans out!