This blog contains some simple tips and advice from two regular guys. We're not accountants, financial advisors, or brokers, so follow, ignore, or discuss our ideas as you see fit.

Monday, March 3, 2008

Pay raises and budget adjusting

Posted by Matt

I had my annual review recently and received the happy news that I would be receiving a 4% pay increase. Yippee. So I'm almost keeping pace with inflation. Okay, attitude adjustment...be thankful for what I have and get on with the info.

My family was getting along fine before my "bump", so I decided that we could just stick with that same income level. One of my financial goals for 2008 is to increase my savings rate anyway (especially for retirement), so I signed on to our H.R. website and increased my 401k contribution level from 15% to 19%. (For the detail-oriented among you, yes, I'm aware that contributing 4% of my new salary is going to cost slightly more than I actually get from a raise that is 4% of my old salary, but I figured I should stretch.) This should put me very close to maximizing my 401k contribution this year! Finally!

I just found out that my company automatically monitors my contribution level and if I do ever exceed the maximum, they will make the excess contributions from after-tax dollars to save me from having to take a distribution. The after-tax contributions can be withdrawn tax-free (since I've already paid tax on them, obviously), however, the growth on after-tax amounts is taxed.
Seems like yet another argument to open a Roth account, but I'm still holding out. Maybe I should work on exceeding the income limit so that I can just forget about them once and for all. How's that for a goal?!

For any of our readers that our interested in the benefits of my 20/20 hindsight, I wish I would have accelerated my savings rate faster than I did. Increasing the contribution rate when you get a raise is the least painful way I know of to do it; I probably just wasn't aggressive enough with the size of the increases.

1 comment:

Debt Dieter said...

Great post & congratulations on the pay rise! I'm looking to do a similar thing myself this year.

Here in Australia retirement accounts and laws are quite different, but the principles are exactly the same, early and often are the way to go when saving for retirement.