It’s that time of year again, when people start to think about the possibility of getting a raise and what they will do with their newfound windfall. This is dangerous as many of us end up spending that increase many times over in our heads often creating a scenario we can’t afford. After all don’t I deserve to bump up my car from the standard to the LX model? The answer is no, because you also already booked yourself a nice vacation, and bought yourself a new pair of boots.
As an aggregate the amount of the raise seems like a lot of money. But, you still have to pay taxes on that money cutting the true amount into your pocket significantly, and then you only see the portion of the raise allocated to that 2-week pay period. So in reality when you compare it to the same 2-week period the year before it is not that a big a difference. But, if you start to spend this money, your total monthly spending will start to creep up, and in all likelihood more than the raise itself.
Instead before the first raise even hits your bank account and you become a victim of spend creep, set up an automatic withdrawal to pay yourself first into a separate savings account. This way money you never had starts to add up for you over the long run. If you don’t start spending your raise you will learn to get by on the same budget you had the year before. You can still get that upgraded model of car, go on a nice beach vacation or get a really great pair of boots (I mean really great.). You just have to wait until the total cost is equal to what is in the savings account, and then you pay for it with cash you saved all year.