A friend of mine just found out that he is getting a surprise promotion. His company is restructuring after being sold, and they’re downsizing a bit, so he was worried that he was going to lose his job. Instead, he’s getting a huge promotion with a big increase in responsibilities and about a 25% pay increase.
25%!
I was joking with him that now he can afford to go out to lunch twice a week instead of once a week. But it got me to thinking. What would I do with a substantial pay increase like that? I’m living comfortably enough on my paycheck now. My bills are paid. I’m contributing about 8% of my paycheck to my TSP (government 401k – I have a match on the first 5%) and I put the full amount in my Roth IRA every year. I’m paying my mortgage, but not paying extra.
So what would I do with that 25%?
Logically, I should and probably would increase my retirement contributions. See if I can’t get it up to the max. I have to admit that my returns haven’t been all that stellar, but it’s money that’s being put aside, and I have to have faith that it will grow.
But after that? I don’t know.
Well, I’d probably think about getting a dog. I grew up with dogs. I desperately want a dog. But I cannot afford a dog. I work long hours and would need to get a dog walker. Around here, that runs around $400 a month. And then there are all the other costs associated with a dog (or any other pet). Of course, it would be worth it, but right now, it’s just not financially feasible. So I must remain content with my cats. At least they don’t require walking.
(And before anyone says anything about getting a dog but not being home – I would adopt an older dog from a shelter. One who just needs a home and is happy to sleep all day… which can apply to younger dogs too, in my experience.)
Would I pay extra into my mortgage? Honestly, probably not. Instead, I would put the money into the house. My house was in really good shape when I bought it, but there is work to be done. I need to replace some windows. I need to replace the extremely rickety fence. In the long term, there is some flooring that I would like to replace or at least refinish, and I would like to knock out a closet and enlarge the master bathroom. Of course, these aren’t things that would happen immediately with a pay increase, and they’re something that will happen eventually, but it would just be sooner than planned.
So what would you do with a 25% pay increase?
Megan is a 40-something government employee in the Washington, DC area. She got interested in Personal Finance when she got out of college and realized that her paycheck wasn’t going to go as far as she had hoped. Since starting this blog, she has managed to buy a house and make a solid start on her retirement goals, and hopes to help others do the same. Here is her story:
In 2007, I was a gainfully employed 20-something with no debt but not a lot of knowledge about personal finance. It was a co-worker’s comment about Roth IRAs that sent me to the internet, searching for information. It was then that I realized that I really didn’t know a whole lot about personal finance and that my current financial situation was due a lot to inherent frugal tendencies, generous family members, a fear of debt, and good luck. While that was working for me, clearly I needed a better plan.
While I had no debt, I was also pretty much living paycheck to paycheck and not worrying about going over budget (I say this as if I had a real budget) because I had an emergency fund set aside to cover any overages.
Except that’s not what an emergency fund is for.
So I did a lot of research, read a lot of blogs, and decided that I needed a plan. I needed to budget. I needed to know what I was spending my money on. I needed to prepare for the future.
I decided to create a blog not only to make myself accountable to others but also to share the knowledge that I gained along the way. I’ve learned so much from my fellow bloggers, and I hope that my readers can find something useful in what I have to share as well.
