Of Raises, Roth IRAs, and Saving Automatically

by mzumtaylor on October 30, 2012

in Becoming a CPA,Budgeting,Costs of Living,Earn More,Personal Finance,Saving,Spend Less

A little over two months ago, I found out that my company was hiring an entry-level accounting clerk. I applied, since Accounting is what I’m currently going to school for, and I got the job!

With the job came a new starting salary, which was a very nice effective raise from the salary I had previously been paid.

Beware of Lifestyle Creep

As any personal finance blogger worth their salt will tell you, the biggest thing to watch out for when you get a raise is “lifestyle creep.” The theory is, if you were living within or below your means before your raise, there doesn’t seem to be any reason you can’t continue to live even more within or below your means after the raise.

But, if you’re not paying attention, it’s very easy to spend the extra money on little things that add up and without realizing it, you’ve become a victim of lifestyle creep.

Preventing Lifestyle Creep

The solution is to look at your budget/spending plan before you get the money in your account, but after you know how much more you’re going to have, and make a plan for that new income.

The change in our budget looked like this:



(The differences are marked in peach.)

As you can see, we did our best to put the majority of my new income into Savings, but we did add a little bit into the Wants category. (Lifestyle creep is not inherently bad, it’s just something that you don’t want to happen without your knowing about it.)

Contributing More to My Roth IRA

Before I got this new job/raise, I was putting $60 per paycheck, or $120 a month, into my Roth IRA. (I work for the state, so don’t have a company 401(k) into which to be putting money.)

Now that I’ve got this new job/raise, my plan was to put $100 per paycheck into my Roth IRA. A relatively small change that we probably wouldn’t even notice, month-to-month.

However, when I did my fancy planning on the spreadsheet up there, I forgot to make said change, and now I’m finding it harder to go back into one (or several) of the categories we increased and decrease it (or them) by the necessary $80 a month.

I know, logically, that it’s a good idea to put that $80 into an investment account where compound interest can work its magic.

I also know that if I don’t reallocate the money, when I look back in 20 or 30 years, I won’t be able to tell you what I spent that $80 on each month, but I will be sad that it didn’t get added to my Roth IRA, and therefore isn’t available as I get ready to pay for one of of my crazy retirement goals.

So clearly I should do it. But it’s hard.

Saving Automatically is Truly the Way to Go

And that, my friends, is why making any saving you do automatic is a really good idea. Because even with everything I know about why saving (especially long-term saving) is a good idea, I still find it challenging, psychologically, to take the steps to make the change. It’s so much better if you only have to go through that psychological battle once to set up the automatic saving plan, instead of every month.

Am I going to make the change to the amount I contribute to my Roth IRA?


In fact, while I was giving this blog post a bit of time to stew before I reviewed it for posting, I printing off the Direct Deposit form from my work’s website, and filled it out. Tomorrow when I go into the office, I’ll turn it in to the HR department, and adjust my budget spreadsheet accordingly.

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Jimmy@ Finance Care Advice December 19, 2013 at 11:18 pm

Great statistics. I love your representation.

Thank you for sharing it.


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