My organization has multiple fiscal years for some odd reason (multiple funding sources), but the date that employees care about the most is July 1. This is when we get our annual salary increases. They aren’t raises per se because they’re only loosely tied to performance—everyone gets one, and it’s more of a lifestyle cost adjustment. It’s between 3-5% typically. And in the past, avoiding lifestyle creep wasn’t on my radar.
Pre-Financially Savvy Me
Raises were more money in the bank! I might have tweaked my 401(k) contribution once, but I wasn’t very conscientious about it. Instead, these raises were a relief because I had credit card debt and expensive spending habits to fight. This was more money to put toward expensive veterinarian bills and Treat Yo’Self Moments™.
What about this Year, Now That You’re Financially Woke?
This year, I got smart. The second that raise came through, I put the vast majority of the change in my paycheck straight into my 401(k). And I did it before even seeing the actual number, which in the past I would have waited for. And then upon seeing it, I would have talked myself into spending it on other things. See, the raise goes into effect July 1, but we just found out the number this past biweekly paycheck. So they backdate the raise, and I got a bigger chunk in this paycheck than I will in the next when it’s a regular schedule.
In the past, I would wait to see what that actual biweekly increase was. But I still don’t trust myself (which is also the reason I follow a formal budget), so I didn’t want to get used to seeing a bigger number in my next paycheck. Instead, I did the math and used a rough estimate. I probably needed to be increasing my contributions anyway. Now, this isn’t make-or-break money. It’s $50 extra per pay period into my 401(k). But that’s $1300 more in there than there was last year, and every penny counts. I may not be at the point where I can max out contributions, but at least I’m finally going in the right direction.
So Where Else is Your Money Going?
At this point, most of my savings are going into two main categories other than retirement. 1) Emergency Fund. I want to build this baby up fast, especially as I deal with this weird quarter-life crisis/career ennui. And 2) A Down Payment. I love the idea of owning my own home and being about to make the decisions I want. I also love the idea of living in a place where I can afford more than a 600 square foot 1-bedroom condo. Once I find that location though, I want a down payment ready. Or at least on its way to ready.
I know that the typical financial advice is to max out retirement contributions first, but this method is what makes me feel secure about my finances. Some money is going to short term goals (emergency fund), some to medium-term (down payment), and that still leaves a healthy amount to long term goals (retirement).
That’s my Money Win of the Week! Read more about my week in my next Weekly Update on Sunday (or catch last week’s dramatic update here: The Value of Happiness: Why I Walked Away from $40k).
Also, a reminder that I’ve opened up an Etsy shop that I’m really excited about! Check it out and let me know what you think.