Brian and I are both starting new positions this May. As a result, we’ve updated our budget! I mentioned before how it was important for us to avoid lifestyle inflation and I think we’ve done that. At the same time, we want to give ourselves room to enjoy a small bit of our success. Our bills and rent stay the same, so there are only a few changes that needed to be made.
Brian and I are devoting 10% of our total income (after taxes) towards my student loan debt (Brian paid off his loans earlier this year). We are also putting in “extra paycheques” and bonus money towards paying down our mortgage. By paying our debts early and quickly, we avoid years of servitude and many thousands of dollars in interest. Think of it this way – every extra dollar I put into my student loans is a guaranteed 4% return, simply because I avoid paying interest on that dollar.
But you can’t get ahead unless you also grow your money! To that end, Brian and I are saving over 40% of our net income. This money is divided between retirement savings, TFSA investments, a downpayment on a new condo, and our emergency funds. This does NOT include the pensions that we have through work because this money is taken out before taxes. Brian is saving 1% a year through his work pension plus an equal match (it’s not a very good pension, but free money is free money). I’m going to be contributing 6.5% of my pre-tax salary plus a 8-10% employer match (depending on various taxation proportions) in my work pension.
Of course there is a heading for spending! Despite what many people might think, having a budget does not mean having no fun. In fact, I would argue that it’s more fun – my spending money can be spent at will, without regard for consequences, because I have the security of knowing that my debts and savings are already taken care of. Brian’s allocated spending money does not change, however, he will get slightly more money in his flex fund for irregular expenses. My allocated spending jumps from a measly $45 a month (due to my student budget) to $200 a month plus irregular expenses. This is still much less than my pre-student spending account – I’ve learned to live with less.
I actually feel like our budget is pretty lavish. Despite saving a huge chunk of our money, we’re giving ourselves quite a bit of spending money. I am tempted to lower it further, but Brian and I have agreed to see how this goes.
What do you do when you receive a raise? Do you spend it, save it or ignore it?