You Got a FAT Raise, Now What?

So you got a promotion and a FAT raise, now what?

First of all, congratulations!  You must be kicking butt at this work thing and you should feel really good about your accomplishment.

So celebrate a little.

But don’t buy anything you’ll still be paying for after this amazing feeling wanes.

And it will wane quicker than you think.  Our emotions revert to our baseline quickly–both after good events and bad.

Celebrate with people who love to celebrate YOU.  Have a special meal, spend a bit extra on your drink of choice, maybe go away for the weekend.  Make it special.

But don’t go crazy.  Because your real test after a promotion, isn’t whether you can succeed in your new role–obviously you can.  Your real test is how much of that FAT raise you can use to create the future you want for yourself.

So once you wipe that smile off your face?  What do you do?

If you don’t have an emergency fund, put the first $1,000 away in a savings account.  It’s best if this savings account is at a different bank from your checking account.  Make it a bit difficult to get at this money!

If you have high interest debt – where the rate is 6% or more make a plan to pay it off. Use the Debt Avalanche or the Debt Snowball or even the Debt Bonfire. Set up automatic payments and make that raise disappear.

Stop by your HR department and increase your retirement contributions.  At a minimum, make sure you’re getting the full match your company offers.

Increase your emergency fund to at least three months of essential expenses.

Once your high interest debt is wiped out, make a plan to pay off any other consumer debt.  This is debt other than your mortgage or student loans.

Open up an IRA and set up automatic transfers to fund that IRA completely.  The limit for 2017 is $5,500 each year if you are under 50 and $6,500 if you are 50 or over.

If you’ve maxed your IRA and still have more of that FAT raise to spend, go back to HR and increase your retirement contributions some more.  The limit for 2017 is $18,000 each year if you are under 50 and $24,000 if you are 50 or over.

Or if you’re planning to retire early, you’ll need some money you can get to before you turn 59 1/2.  So open up a brokerage account with Vanguard, Fidelity or Schwab (I prefer Vanguard).  And set up an automatic transfer to that new account from your checking account–or better yet have your employer do the transfer for you.  And start investing.

Whoa, still have more? Good for you! Read my 12 Steps To a Kick A$$ Life!

Yep, I’d suggest that you should make that lovely raise disappear.  And disappear quickly. 

Because lifestyle creep is dangerous.  It keeps you from creating the future you deserve.

Make sure that big fat raise creeps its way into your savings or retirement account or investment account.

Because success should be measured, not by your fancy new title or what you have parked in your driveway, but by what you have invested for your dreams.

Do you have a good story about a big fat raise you blew?  I’d LOVE to hear it!

My Lovely, Inefficient Life

I read a lot of my fellow bloggers stuff.  Some, I read because I love how they write (frugalwoods), some, I read because I love how they think (OurNextLife),  some I read because they are irreverent (BitchesGetRitches), and some, because they have such great hacks.

Many of the hacks are to help people save time.  Because these bloggers have to fit a lot into each day.  They often have full time + jobs and families and successful, money making, blogs.  I run a money losing blog and it still takes a lot of time.  I can’t even imagine how much time is devoted to a money making blog–oh the pinterest pins, the facebook groups, the tweeting that is necessary . . . it’s so daunting, I haven’t even attempted it.

And, I have to admit, when I read about hacks to save time, I kind of giggle inside.  I’m still celebrating that I don’t need to be so damn efficient.

I’ve created a life for myself that has a ton of inefficiency built into it . . . because I can.

This came to light not long ago when I was making my salad for lunch.  Mr. Ms. Liz asked why I made a salad every day.  Why didn’t I make multiple salads at a time?

When I worked, I’d make two or three salads at a time so I could grab and go.  Busy, busy, busy, worky, worky, worky.

But now, I listen to a podcast and joyfully create a salad each day.  Because I can.

Then Mr. Ms. Liz and I eat our lunches whilst watching The Price is Right.  My, now, not so secret addiction–oh and I do shout out the prices of things and who doesn’t love Drew?

And if something comes up, like it did this week, when my fake kids needed help watching their toddler (my fake grand), I can easily fit that in.  Because this lovely, inefficient life can accommodate the unexpected.

But this life was built on decades of maximizing efficiency so I could work (at times, a lot), and keep a home in order, and prepare food, and keep an eye on my spending and investments, and make time to play with Mr. and our friends, and parcel out some down time for myself.

Because I’m happiest when I have a lot of down time.

So I’m thankful for those efficient years.  And especially for the time I devoted to keeping an eye on my spending and my investments.  Because that time bought me this lovely, inefficient life.

What are you doing today to create your lovely, future life?

Photo credit:  Ms. Liz in Moab, Utah

The High Cost of Marriage

Please don’t think I’m questioning my relationship or my life partner.  Mr. Ms. Liz is truly my best friend; he makes me a better person.  There’s no one I’d rather have along side me in this adventure of life.  We’ve created a life, together, I could not have created without him by my side.

But that doesn’t mean I won’t examine what marriage has cost us . . . financially speaking.

First, some history.  I was married at 24–crazy and amazing that I found the person who would make me happy over these last 28 years at such a tender age.

When I married, I changed my name.  Mr. thought it was unnecessary to do so but I wanted to be MARRIED and changing my name made me feel MARRIED.

In fact, Mr. wasn’t all fired up to be married, he was perfectly happy to cohabitate.  Smart guy.  But, I wanted to be MARRIED and he wanted me to be happy so we were married.   And we’ve been quite happy.

My frequent readers know we keep our money completely separate.  I never thought we needed to combine finances in order to feel MARRIED.

For the first 25 years of marriage, we split our house related bills based on our incomes.  When Mr. made twice what I did, he paid 2/3 and I paid 1/3 toward these bills.  As my income grew, I paid more.  This allowed us to live at a blended lifestyle rather than at the lower earner’s (mine) lifestyle.  Over the last few years, we have split our house related bills based upon our relative net worth.  Again, he pays more than I do because his net worth is higher.  This has always worked well for us.  We’ve always split groceries and other joint purchases evenly.

Because we keep our money separate, I’ve always split our income tax bill based on what we would have paid if we were single.

You see, the U.S. tax code is set up for a family where there is a high wage earner and a low or no wage earner.  The tax code penalizes families where both partners have similar or high earnings.  This additional tax cost is referred to as the “marriage penalty”.

The penalty exists because the upper earnings limits for the married filing joint tax tables are not two times the limits in the single tax tables.

Then, at higher income levels, an alternate minimum tax kicks in which makes the marriage penalty even worse.  Oh and Obamacare added some pesky charges when your income is quite high and we hit that.

And because I am a strange money nerd who looks at this stuff, I can tell you how much marriage penalty we’ve paid over the last 22 years.

In the highest year, our marriage penalty was over $7,100.  Yep, $590 a month not for a car payment or a fancy trip but for the privilege of being married.

And this wasn’t a year where we had some crazy investment windfall.  It was just the year when we made the highest bonuses and salaries.

There were a few years when we benefited slightly from the stupid tax structure.  These were years when Mr. Ms. Liz was engaged in entrepreneurial endeavors and we had one high earner (Me!) and one low earner.

But our net marriage penalty over 22 years totals $44,000.  If we had invested that money at 5%, we would have over $65,000.  I’ll pause for a moment for you to absorb that. . . $2,000 bucks a year just for the privilege of being married.

And the reason this is top of mind for me this morning?  Because it is only going to get worse.

My careful readers know Mr. Ms. Liz is converting his traditional IRA’s to Roth IRA’s during these years when we have a (intentionally) low income.  He can convert them with little or no federal tax.  He also incurs no state tax because of a $20,000 exemption for retirement income once you are over 60.

Perfect world, I would do the same once I reach 60.  But Mr. Ms. Liz will be 68 by then and will likely be collecting Social Security.  Which will raise our income and virtually eliminate the benefit of conversion.  Even if he delays Social Security until he turns 70, I’ll only have a two year window for my conversions.

Then there’s Social Security.  The benefits are taxable if your combined income exceeds $25,000 for SINGLE taxpayers or $32,000 for MARRIED taxpayers.  So, again, we’ll be paying tax on income that would go untaxed for single folks.

Oh, and then there are the earnings limits for the health insurance subsidy.  IF we have subsidized healthcare and earnings limits are still in place when Mr. collects Social Security, his Social Security benefits may cause me to lose the subsidy.  He’ll happily be on Medicare and I’ll be searching for a health insurance premium that doesn’t force me back to work.  You know I think this subsidy is absurd for high net worth individuals but that doesn’t mean I’m not enjoying the benefit.

Now, I know these are all first world problems.  I am incredibly grateful for the opportunities my parents and this country have provided me.  All of these penalties are the result of our ability to earn high incomes and live astonishingly abundant lives.

I just wish it didn’t cost so much to be married.

Knowing everything I do now, would I marry Mr. Ms. Liz again?  Absolutely, no question one of the best decisions I’ve made.

But if my partner and I were conflicted?  Or if we were ambivalent?  Here’s one more bit of information to weigh.