How to deal with a pay raise
I know I've read an article with the same title of this post on MSN Money, but who cares. I'm going to cover the topic here, because I just found out that I am getting a $136 per month bump in my Basic Allowance for Housing next year! Whoo-hoo!
For those of you unfamiliar with the military, our pay is taxable, but our allowances (BAS and BAH) are not. In other words, this money represents an ACTUAL $136 raise in pay, versus a before tax raise like a COLA (cost of living adjustment) raise.
The reason that BAH went up here at Tyndall AFB is because rents and utility costs increased pretty dramatically in this area last year. As a homeowner, however, I am partially insulated from this phenomenon. My homeowner's exemption kicked in finally, so my monthly required mortgage payment actually WENT DOWN. :-D This had no effect on my monthly budget, other than to increase the amount of additional principle that I am paying towards my mortgage. I am on a bi-weekly payment program that I have set up where I send exactly $450 every two weeks. Since my mortgage required payment actually decreased, the additional amount applied towards principle will increase from $87.78 to $119.97.
With the additional $136 coming in...I've decided that I am going to bump up all of my savings pots, and try to stick to my stated goal of keeping expenses the same.
So, I'll divvy it up like this:
$25 - credit card principle payment increase
$18 - emergency fund
$20 - car principle payment increase
$13 - retirement savings increase
$60 - COLA adjustment.
See, I figure that I have to keep at least SOME of it, in order to offset the rise in prices that neccesitated this increase in the first place...maybe give me a little more elbow room from month to month...but my primary objectives haven't changed. Ridding myself of this debt load and saving money for retirement are my biggest goals...and nothing will give me the peace of mind and "elbow room" that paying off my debts will.
Once the credit cards and the car is paid for, that's going to be roughly $830 per month that is freed up for reallocation towards either spending, savings or going after the mortgage. At that point, I probably won't want to aggressively pursue the mortgage...I expect interest rates for savings accounts like ING will continue to rise and at 5.875%, I'm barely paying anything in the way of interest costs...but at least I'll have the OPTION. It wouldn't make sense to pay extra on towards the house if I can get a better rate of return in my savings account, you know? *sigh* I'm really looking forward to having those kinds of options.
Anyway...long story short...when you get a pay raise...don't just figure out ways to increase your lifestyle...figure out a way to save a portion of it, and with whatever is left over, THEN increase your lifestyle. Always pay yourself first.
For those of you unfamiliar with the military, our pay is taxable, but our allowances (BAS and BAH) are not. In other words, this money represents an ACTUAL $136 raise in pay, versus a before tax raise like a COLA (cost of living adjustment) raise.
The reason that BAH went up here at Tyndall AFB is because rents and utility costs increased pretty dramatically in this area last year. As a homeowner, however, I am partially insulated from this phenomenon. My homeowner's exemption kicked in finally, so my monthly required mortgage payment actually WENT DOWN. :-D This had no effect on my monthly budget, other than to increase the amount of additional principle that I am paying towards my mortgage. I am on a bi-weekly payment program that I have set up where I send exactly $450 every two weeks. Since my mortgage required payment actually decreased, the additional amount applied towards principle will increase from $87.78 to $119.97.
With the additional $136 coming in...I've decided that I am going to bump up all of my savings pots, and try to stick to my stated goal of keeping expenses the same.
So, I'll divvy it up like this:
$25 - credit card principle payment increase
$18 - emergency fund
$20 - car principle payment increase
$13 - retirement savings increase
$60 - COLA adjustment.
See, I figure that I have to keep at least SOME of it, in order to offset the rise in prices that neccesitated this increase in the first place...maybe give me a little more elbow room from month to month...but my primary objectives haven't changed. Ridding myself of this debt load and saving money for retirement are my biggest goals...and nothing will give me the peace of mind and "elbow room" that paying off my debts will.
Once the credit cards and the car is paid for, that's going to be roughly $830 per month that is freed up for reallocation towards either spending, savings or going after the mortgage. At that point, I probably won't want to aggressively pursue the mortgage...I expect interest rates for savings accounts like ING will continue to rise and at 5.875%, I'm barely paying anything in the way of interest costs...but at least I'll have the OPTION. It wouldn't make sense to pay extra on towards the house if I can get a better rate of return in my savings account, you know? *sigh* I'm really looking forward to having those kinds of options.
Anyway...long story short...when you get a pay raise...don't just figure out ways to increase your lifestyle...figure out a way to save a portion of it, and with whatever is left over, THEN increase your lifestyle. Always pay yourself first.
Labels: pay yourself first, planning, raise
posted by ~Scott~ at 4:01 PM
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