How to save pay raise

[corn18]

I am listening to everyone on here and saw a good piece of advice in another thread: when you get a raise, put it in savings. I like that idea. But here's the question: do you put the gross or net raise in savings? If I put the gross in, my take home pay goes down by an amount equal to the taxes on the raise. I think I should save the net. For example:

I get an $800 / month raise:

-$151 Fed Tax
-$35 State Tax
-$8 Local Tax
-$50 Social Security
-$19 Medicare
-$56 401k (this counts as savings but doesn't come home)

=$501 net

I would think I should now save an additional $501 / month. If I save $800 / month, I've got a $300 hole in my budget.

The car payment to savings after you pay off the car is much simpler.

Tom

[MonkeyMama]

We have regularly saved pay increases - just the net.

I don't think the gross amount is useful at all from a "saving the difference" standpoint. The tax hit can be mighty on a raise.

[bjl584]

I agree with your line of thinking. Save the net.

But, something to think about; if you increase the amount in your 401K then that is pretax. Your math changes a bit.

[moneysma]

I agree with your line of thinking. Save the net.

But, something to think about; if you increase the amount in your 401K then that is pretax. Your math changes a bit.

Agree 100%. Increase your 401K contribution if you aren't maxing it out and then see what your take home pay is versus what it was. Then save this amount - aka the net.

[krantcents]

I used to just increase my savings deduction for the gross. Since it is a pre-tax deduction, the IRS is subsidizing my savings. For fort years, I always had a payroll deduction for savings. I used to save a minimum of 50% of every raise and promotion. It helped me achieve financial independence in my late thirties (38 y.o.)!

[Jerry91]

It will be completely up to you as to whether you will save the gross amount or the net amount. If you are comfortable with the net amount, then you should go for it.