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.
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?