I have been working for the same company since January 2012, but I have only been eligible for a pay raise since August 2012. The next raises coming our way were in September, a month away, but almost a week after I became eligible for an increase, we were told that we weren’t getting any.
Good timing!
They said they’d look at pay raises come April, but April came and went with no news.
Last night I snuck onto my work email from home (woops) and saw a happy surprise – an email to my department saying we could have raises again!
My pay raise will be for about $0.70 – not a lot, but enough to keep me happy for a little while. This is a raise, based on the number of hours I work per year, of $1365. A portion of it will be eaten up by taxes, but for arguments sake, let’s say it’s just $1365.
So here’s what I’m deciding between for it’s allocation:
Retirement Savings
I really want to increase my retirement savings so I can have at the very least one years worth of my salary saved up by the time I’m 30 in retirement savings.
If I stay in my current role until I’m 30 I would get the same raise of $0.70 each year for 4 more years until I’m at the top of my wage level. Meaning based on my income right now:
- the first year, I’d make an extra $1365
- the second year, I’d make an extra $2730
- the third year, I’d make an extra $4095
- the fourth year, I’d make an extra $5460
- and the fifth year, I’d make an extra $6825.
By then I’d be 29, and have an extra year to save up the $6825. Without interest, just from saving my raises and continuing on with budgeting for what I currently make, I’d be able to add $27,300 to my retirement savings.
This would be a step in the right direction toward saving up a year’s worth of my current salary before I’m thirty, if we just pretend that I’ll stay at this job and level.
Increase Other Savings
This would be boring, and it’s stupid to have a bunch of money sitting in an account needlessly, but I could have a pretty hardcore savings account with the amount I have already been putting away.
I guess I could put it in my emergency fund, but that’s not really my style. Who needs a $40,000 emergency fund?
Put It On My Mortgage
If I were to save up my raises in the way I outlined above under “retirement savings”, and put it on my mortgage at the end of the 6 years before I turn 30, I’d shave 3 years off of the mortgage and save a bunch of money in interest.
Our rate is fairly low – 3.04%, but you never know where interests are going to go when we renew our term. If I can make more in interest with the money in my RRSP, obviously I’ll go with that option over this one.
It’s all about profit maximization, right?
Travel With It!
This is definitely sounds like a fun way to spend the extra cash. There are many, many places I would like to visit within the next few years, and I actually think I would be smart to spend my extra money.
I’m only young once, and travelling before I have children is definitely a priority for me. I didn’t travel when I was just out of college or high school like so many of my peers, and haven’t done much travelling in general since. There are a few places beyond my smaller, North American trips that I had plans to visit, but no real plan of paying for it except working more.
A Combination
What I’ll likely end up doing is a combination of some of these options. I’ll probably start with a year or so of saving it, and then deciding by that time whether it should go toward a trip, or if I want to put it into an RRSP. Taking it year by year after saving the money is sounding like the best option to me.
We’re already saving for retirement, planning on travelling, and looking at paying down our mortgage faster with our current incomes, so anything extra is just a bonus.
No matter what I do with it, yay for getting a pay raise!
Congrats on the raise! One thing I’ve done in the past is split the paycheck up so that you see it as what you were getting before you got the raise, and the raise itself. Then you can allocate the ‘raise’ toward whatever you want, and it can change with each paycheck!
Congrats on your raise!
Congrats on the raise and its tough trying to figure out what do to. Since 401k’s were already set to max we took the extra and put into emergency savings.
Congratulations! If I were in your position, I’d use the extra money to 1) pay down any debt, including mortgage, starting with the highest APR; 2) start a planned savings fund targeted for a goal like a car, major appliance, renovation; 3) add to my retirement accounts if not already maxed for the year. Unless I were debt-free and had loads of savings, I wouldn’t spend it. Well, maybe a little bit. Boring? Could be for some I guess, but I don’t find boring making progress toward financial freedom and a secure retirement!
Awesome job! I’m all about doing combinations!
Congrats on the raise! Your hard work paid off. I would probably bump up retirement a bit and travel with the remainder. Its much easier to travel before you have kids.
Congrats on the raise, and I like the multi dimensional plan that you’ve come up with. Definitely looked at it from all angles, also if you switch jobs before 30 you also may have the opportunity to get an increase in salary instead of waiting on that raise. Oh and definitely travel! I’m going to be doing that once I’m done university and I can’t wait.
I personally add half of my raise for retirement and use the other half for whatever strikes me. Responsible and fun!
Very good post – You seem like a goal-oriented person, with loads of common sense – definitely more than most of the twentysomethings around!
Keep up the good work and you’ll get where you want to be in no time!
All the best,
Chris
You are young enough for compound savings from your raise to really add up over the next couple of years. It makes it a good plan to squirrel that raise away for retirement.
I’m putting my next two yearly raises to my 401k account. That should take me to the max of 17.5k which I feel is a good thing to do for my future.