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?
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.
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)