It’s All About Balance
Being rewarded for hard work via increased compensation is a wonderful feeling. It makes us feel accomplished and proud that our work is not going unnoticed. I’m here to encourage you to be mindful, however, when you do receive a bonus or salary raise. We often tell our clients that investing a larger percentage of those extra earnings than you currently save is a great tool to expand your future while increasing your current lifestyle. Of course, you should only do this after you’ve established an adequate emergency fund.
For most, an increased income comes with an increase in budget. We might think that our lifestyle should increase now that we have extra wiggle room to experience or purchase things we otherwise wouldn’t with a smaller income and tighter budget. Naturally, we spend more as we earn more. Here are a few ways you won’t have to fall into that category.
Tip #1: Spend the same amount as you did pre-raise or bonus. Financial success is often found by living below your means. You will already be used to living the way you have been. Why stop? You have already trained yourself to follow your budget, and the only thing left to do is increase those automatic contributions to your investment or savings account each month by the amount you receive from your bonus or pay raise (in that case, per month). Think of this as short-term pain for long-term gain.
Tip #2: Reach out to HR to have 50% of your increase in income, quarterly bonus, or whatever it may be, be direct deposited into your savings account or brokerage account. If you wish to deposit into your IRA, make sure it is not above the annual contribution limits for the current tax year. This is a win- win strategy, you get to enjoy your hard-earned money while simultaneously planning for a more comfortable retirement.
Basically, life is all about balance, and retirement planning is too. You want to make sure you don’t outlive your assets and enjoy life in retirement, but you also want to make sure you are living life to the fullest in the present. These two tricks can help guide you towards a well-balanced and healthy retirement plan.