How do you handle a raise?

[StressLess]

Just curious if anyone has a system for handling raises. I've been trying to find a rule of thumb I can live with, and what I've come across is all over the map. Some people believe in socking the entire increase into savings, if they have no debt to pay off. Some put 1/2 or 1/3 into savings, and raise their standard of living a bit by spreading the rest through their budget.

Personally, this is the way I'm leaning:
10% into my spending account
8.5% into a home improvement account (to start working on non-emergency stuff we've been putting off)
30.5% into retirement savings
15% into I-bonds through payroll savings (long term emergency fund)
13% into bank money market (short term emergency fund)

The remaining 23% I'm not sure how to divvy up--I want to start putting even more toward the mortgage, and we also have to save up for a new car, but we haven't decided how much for each.

(This is a one-time big jump in income for me--I don't think I'd divide up a 2% raise this way!)

[Fizgig]

I split the raise into two different accounts via automatic deductions. 80% goes to increase my long term savings amount, and 20% to my splurge fund.

[terickson82]

For the past few years I would just add another 1% of my paycheck into my 401k, which I'm now contributing 10% of my paycheck each month. But I didn't do that this year. Instead, I had already been actively funding my emergency savings, and I just tacked the raise into that part of my budget every month. Hopefully I'll have the emergency savings topped off by early springtime. Here's to hoping!

[disneysteve]

Well, I haven't had a raise for years, so I haven't had to address this issue lately, but what I typically do is put the bulk of the increased take-home amount into savings. I leave 10-20% of the higher income for spending to account for the fact that inflation makes every day expenses higher over time.

[MaskedMarvel]

If you don't have debts then I would save it but if you do try to pay off the debts with the extra money you're making. You should already be saving some money anyway.

Congratulations btw

[jIM_Ohio]

I take the raise percent (4%) and subtract 1% from it (3%) then I increase the 401k contributions of myself 3%.

I have a more detailed formula I use if I need to add my raise to my spouse's 401k, but it essentially does the same thing.

If my raise is 4k, I divide that into my spouses salary (50k) then the resulting percent (4/50=8%) is reduced by 1% andf the wife's 401k is raised by 7%.

Take home increases slightly and the entire raise shows up in retirement portfolio as well.

[maat55]

It depends on a families dynamics. Mine, I would put 80% towards investing and the other 20% bribing DW. We have a comfortable lifestyle and I would rather build wealth, DW would rather save the economy.

[GREENBACK]

My raises come in increments that are designed to keep up with inflation. Since my savings are about 30% of my income I don't usually add raises to my savings, I just use it for everyday expenses.

My only debt is mortgage related. I don't care to pay that off until I have to so I don't put extra towards it.

[creditcardfree]

Well, we had our income nearly double two years ago. We didn't have debt other than the mortgage...and we already had an emergency fund. We made sure we increase our Roth contributions to the max, which was 15% of our gross income, we began saving for college. We saved for a downpayment on a van and now have a loan payment that some of that increase now goes to.

List your goals in order of importance and time frame and apply accordingly.
There really is no one way to do this. Best wishes

[Snowgirl]

Well, since I max out my retirement account, it means I put 18% of my raise toward that. Then, I usually divide the rest between short term savings (renos, big purchase, ...), vacation savings, and regular budget. Last year raise was about 75$ net per pay after retirement, so each "account" got 25$. Now I just don't think I'll have a big problem spending my raise next year... I'll feel lucky if I get cost of living.

[ScrimpAndSave]

I get a $10,000 raise next year and a $10,000 the year after that. I plan to save it all.

[gamecock43]

My last raise was .50 increase an hour (several years ago) and I signed up for donating $30 a month to my local charity through my credit card. I kept the other $40 a month for myself.
I have since quit the job 3 years ago and have been unemployed yet the charity still bills me $30 a month on my credit card.

So the charity is winning out and I feel too guilty to quit the charity.

[Tree0164]

For my DH raises we typicall take 1/2 and put in our general saving accounts and the other 1/2 general 2% and increase his 401k %.

[JinCO]

100% of our raises goes toward paying down debt. Hopefully one day this will be moved to increasing savings.

[feh]

I think it depends on your current standard of living. If you're living like a miser, I'd set aside something to make life a bit more enjoyable. If you're perfectly happy with your life, don't feel the need to spend new money.

Personally, I treat raises like they never happened - 100% gets rolled into savings.