Keeping up with the Joneses like a boss.

My next paycheck will be a bit larger than the last.  I’ll be getting a slight raise, about $2,500 more per year. While I’m stoked to be getting any raise at all, let’s be real, it’s not a life changing amount. In fact, it only works out to about a $75 net gain each paycheck. Or as I look at it, a free lift ticket each pay period 😉

Since Girl Ninja and I are fortunate to have our income exceed all of our wants, we decided to do the boring/responsible thing and further increase our retirement contributions. Instead of throwing 10% of my gross income in to my 401K each month, we increased that sucker by another 3%, to 13%. My employer matches 5%, so in total 18% of my gross pay will be going in to my 401K plan each paycheck. Is that hot or what?

That's hot

So I get a $2,500 raise, and before I even have a chance to see it in my paycheck, we decide to throw all of it towards retirement. If that’s not keeping up with the Joneses, I don’t know what is!!!!

Since I’m a self-proclaimed PF nerd, I thought I’d run a quick calculation…

If we keep throwing that $2,500 in to our 401K plan for the next 40 years, do you want to know how much extra we’d have come retirement? This example assumes a 6% rate of return.

$416,968

There was really no decision to make. Get $75 extra in each paycheck and blow it on things we don’t need, or have an extra $417,000 waiting for us when we’re old?

Lifestyle inflation is cool and all, but if we are already content with what we have, what else is there to inflate besides our savings account, retirement funds, and our charitable contributions? I’m not going to go run out and buy another TV or laptop just for the heck of it.

Last time you came in to a little extra money, what did you do with it? If you had to inflate your lifestyle in one aspect how would you do it? (We would probably pay for a bi-weekly cleaning service)

24 thoughts on “Keeping up with the Joneses like a boss.

  1. I’ve always kept myself from inflating my lifestyle when raises happen but maybe treat myself and friends out some. I don’t agree with necessarily throwing the extras into 401k because we can just as well save it outside. Maybe you can add to your downpayment pool faster… 🙂

  2. What do we do with the extra income from raises? We buy our house off the bank… AT A FASTER RATE! Booyaa! 😀

    The paying for a cleaner has always tempted me mainly from a “I can make more money with the time saved” aspect. I think if we ever did it though we’d save up MORE money, invest it and then use the returns to pay for a maid for the rest of our lives. Now that’s Keeping Up With The Jones like a boss haha

  3. Interesting choice. I would have thought you would have thrown that extra 3% to save more quickly for the new house. Time Value of Money. Definitely think the retirement thing was a great idea though. Was pretty good about it until my current job, where I increased my costs by moving closer to work. Much happier now that I don’t spend 3 hours commuting, but hopefully this will be my next to last lifestyle inflation measure. The last should be the house!

  4. Savings, retirement. That’s what my wife and I always do with extra money. Always. Savings and/or retirement depending on our mood. We have a home, food, clothes, TV, computer, phones, car…like you, I have to wonder what else it is that we need. And the answer there is of course nothing, so we drop it into retirement or savings so that we’ll have it for some later need/catastrophe.

  5. My last raise I did the exact same thing. and I am saving 13% (+3% from my company) But I think my next raise will go to savings for school, or paying off my mortgage faster.

  6. Our raises I’m trying to split between spending $ increase and extra loan repayment. Same with bonus checks. Our budget feels fairly tight so I thnk this is a good way to do it. If only I had enough discipline to just increase retirement contributions my account would like it. This year my husband’s raise pretty much was moot based on the increase in SS. Bummer.

  7. I used to do the same with yearly raises or promotions – put it into the 401k before I even saw how much of a raise I got. Now that I max my 401k, I put the yearly raises into one of my many savings accounts.

    PF nerds can be the Anti-Joneses’.

  8. We already max out our retirement savings, and our motto is to totall ignore the amount coming in, because like you, at this point we have all of our wants and needs more than covered.

    At this point we focus on keeping our monthly costs down and everything else gets saved in some form (cash, investments or 401K). Never do we increase our standard of living (and it’s working – we hit $300K last month!).

  9. Nice job on the raise. How much are you going net due to the end of the SS tax holiday? I got a 2k raise this year and ended up with 8 dollars less a month due to the tax change.

  10. Congrats! I did the same thing until I was maxed out. Now the extra $$ go into savings to pay off my mortgage early.

    Last year’s raise I did inflate my lifestyle with bi-weekly cleaning. It’s honestly been one of the best gifts I’ve ever given myself. I love a clean house, but hate spending the time to do it. I can’t think of anything else. I have all I need and a lot of what I want. It’s been a long time coming but I feel good about that.

  11. My wife and I have been living on my salary for the last three years while she attended grad school. In May she graduates, which means a second income and no tuition payments. She already has a contract with a local hospital so we know what the numbers look like. I have already begun the many calculations necessary to be tax efficient, maximize retirement funding, etc… I’m hoping we don’t inflate our lifestyle, and hiding that money from ourselves will help.

    Right now our debt to income ratio is 16%, and with her salary, and no increase in spending, it will be .05%. It’s unreal to think about.

  12. I get a 3% raise each year, and since it is such a small amount, I’ve never even thought about where that extra cash is going. Great thinking on adding it to your 401k.

    And we’ve also considered having bi-weekly cleaning now that a newborn makes doing the deep cleaning especially impossible! The jury’s still out on whether we’ll make the plunge.

  13. With my raises, I’ve usually increased my 401k contribution or increased how much I transfer to my savings account. And with bonuses, I usually use it to pay down my student loans. I guess it soudns boring, but we’re all doing it!

  14. For now? Extra money goes to debt. My lifestyle inflation would totally be buying coffee every morning. I take public transit and it’s jut a hassle to commute with my coffee and all of my school stuff…especially in the winter!

  15. I would totally have a housekeeper if we were to inflate our lifestyle. I just got a raise too, but we’re moving up the property ladder so it will mostly go into paying off the new house!

  16. Well with my last raise I started putting money into retirement! Go Me! (unheard of in my family). I think when my promotion kicks in I will be splitting the increase between retirement and emergency fund savings. I want both. I’m cutting everything back and paying off my debt so I can save more. As a newly single mom, with 3 kids I feel the need to get the emergency fund going and going quick!!

  17. Haha $2,500 is the biggest raise I’ve ever received. I did the same thing you’re doing. I just put it into savings so I never realized my raise. Also, I took a cut in pay by about $30 or so because of the beginning of the year tax stuff but never adjusted anything so I basically just survive on less. I could get a $10,000 raise, and I don’t think I’d change my lifestyle. I already make way more than one person needs to survive. If I ever get married and have kiddos though…I might have to tweak the ol’ budget a little bit ;).

  18. Good for you guys. Wise choice. You’ll never even miss it, but when retirement comes around, you’ll be glad you did it.

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