I just received my first paycheck with my annual cost of living increase. I won’t call it a raise, and with the increase in my health insurance costs, it’s not a huge amount when it’s all said and done, but my paycheck is bigger than it was last pay period, and for that, I am thankful.
The conventional wisdom on raises like this is to put the entire increase into savings. Pretend I didn’t get a raise and just increase the money I immediately transfer to savings every month. I’m bucking the trend on this one. I’m such a rebel!
All right, not really. I already put away 10% of my paycheck into a savings account, and so that will increase (very slightly). After that, I’m going to put the majority of the increase into my “not-quite-an-emergency fund.” You may remember my discussion about emergency fund guilt. To sum it up, I have an emergency fund with somewhere between 5-6 months worth of expenses in it (and now that I write that, I should sit down and recalculate those numbers and see where I really stand). Having an emergency fund in that state is great! But then I feel guilty about using it. I think it’s because I calculated the value in terms of months of expenses, so I feel that it should be used for that – a cushion on the off chance I lose my job. So then when my car breaks down in the middle of Pennsylvania for no apparent reason, I don’t want to touch the emergency fund. So instead, I created a second emergency fund for such purposes – unexpected doctor bills and car repair bills and things like that. Things that aren’t emergencies in the truest sense of the word, but things that can’t always be predicted and need to be paid for.
So in a way, I am saving my raise. Just not the the most traditional way.
(And if you were curious, the reason I say “most” and not “all” is because I like my transfers to be round numbers. It’s just so much easier that way. Tracking transfers of X dollars and 37 cents just gets on my nerves after a while. I like simplicity.)