How do you handle a raise?

[TBH]

Our raises are usually around 3 percent. We usually increase retirement contributions by 1 percent, and the other 2 percent goes to day-to-day living expenses.

But at this point almost a third of our income is from freelance work, which fluctuates, so we don't get raises per se. For that money, I have a formula that I use to divvy up the money (20% to retirement, 10% to short-term savings, 35% set aside for taxes, 35% to a living expenses account). I take a fixed amount out of the living expenses account every month, so if I earn more in a given month, it just builds a bigger cushion in the account which will hopefully carry us through if work dries up.

[elessar78]

I socked my 2% (ugh) raise into my 401(k) this year. My wife is looking at least a 6% raise if she gets this new job she interviewed for.

I'm scheming on what to do with it, because the raise (unfortunately) cannot alter our standard of living. I'll probably have her start a Roth with it since she we're only contributing 12% of our income into 401(k) right now.

Is my math right though, that if I contribute 12% of my income into the 401(k) that that's equivalent of each of us contributing 6% individually? Assuming we make roughly the same amount?

[Beppington]

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!)

A raise?! You cannot be getting a raise in this terrible horrible economy!!

If you already have a portfolio plan that considers everything in your financial life, as is wise, you'll automatically know what to do with any additional money: Simply allocate it into the areas of your financial life that are lagging.

[LivingAlmostLarge]

Depends. Mostly it'll go to paying off our debts.

[creditcardfree]

I socked my 2% (ugh) raise into my 401(k) this year. My wife is looking at least a 6% raise if she gets this new job she interviewed for.

I'm scheming on what to do with it, because the raise (unfortunately) cannot alter our standard of living. I'll probably have her start a Roth with it since she we're only contributing 12% of our income into 401(k) right now.

Is my math right though, that if I contribute 12% of my income into the 401(k) that that's equivalent of each of us contributing 6% individually? Assuming we make roughly the same amount?

Yes...that is about right: 6% each. They way to know exactly how much you are saving of your income is to take the annual dollar amount you put into your 401K and divide it by your annual salaries together.

Great idea to have your wife start a Roth!!

[Mike75]

Well, there are two ways to handle this. First is the right way and the second is the Fun way.

The right way says that you should save or invest the raise. but the fun way says that you have worked hard for this raise and you deserve to enjoy the luxury.

Which way you choose, is entirely up to you.

[Beppington]

Well, there are two ways to handle this. First is the right way and the second is the Fun way.

The right way says that you should save or invest the raise. but the fun way says that you have worked hard for this raise and you deserve to enjoy the luxury.

Which way you choose, is entirely up to you.

How about a compromise: Save half & have fun with half.

I use 60/40 myself.