Budgeting for an Income Increase (woohoo!) - The (mostly) Simple Life (2024)

Well, this is an exciting post to write! We’ve had an income increase this year with Austin finishing collegeand getting a job in his degree field.

Any kind of income increase is exciting, isn’t it? Even a small percentage raise is a wonderful thing!

Since we’re making a little more money now, we’ve had to decide how to budget that money.

A raise can get swallowed up in frivolous expenses quickly if you’re not intentional with your money. Before you know it, it’s like the raise never happened and your financial situation is still completely the same.

Even a 50 cent per hour raise can become significant when you realize that’s an extra $20 per week (if you work 40 hours per week) which equals over $1000 per year. Not so insignificant, is it? Don’t you want to have something good to show for that extra money?

Whenever we get extra money, whether it’s through a tax return, bonus, or raise, we try to balance using some of the money for fun stuff and some of the money for responsible stuff.

It’s nice to spend money on fun stuff so that you can enjoy what you’ve worked so hard for, but it’s also important to be responsible and use some of the money on things that will have long-term benefits.

Here’s how we’ve changed some parts of our budget now that we’re earning a bit more money:

Fun Stuff

Allowance

For most of our marriage we haven’t had any extra money for fun things that we each wanted. All of our personal wants waited for Christmas or our birthdays.

Honestly, I’ve never felt deprived, but it sure is nice to have some extra breathing room in our budget.

We’ve added an allowance for each of us to our budget. We each get $20 per month to spend on whatever we want. So far I’m spending my allowance onhome decor items, fabric, and books.

Eating Out & Entertainment

Austin and I love going out to eat and seeing movies at the theater. We’ve increased our eating out and entertainment budget so that we can enjoy those things a bit more often.

In our old budget, we spent $50-75 on this category. This month, I budgeted $120 and it was fun to go out about once a week. This is always the first category that we cut back on if we need to save more money.

Christmas & Gift Savings

Another fun way to use an income increase is to save more money for Christmas or birthday gifts.

When we were barely scrapping by over the summer, we stopped saving money into our Christmas fund. We’re back to adding money each month.

At some point we might increase what we’re contributing so that we have more money to spend next Christmas.

We don’t spend too much on birthday gifts (hence this post about $15 gift ideas), but we may start adding more money to that fund as well.

Responsible Stuff

Emergency Fund

We had to dig into our emergency fund a bit over this summer and this week to fix our car (I hate cars!). We’re spending part of our income increase to save more money into our emergency fund.

If you don’t have an emergency fund, a raise would be a fabulous way to get one! Just save the extra money you’re making each month into an emergency fund.

That 50 cent raise could give you a thousand dollar emergency fund in a year and you’d never notice the difference because you’re just saving the extra money.

Retirement Savings

When you get a raise, it’s a great idea to up the percentage you’re contributing to your 401k.

If you don’t have access to a 401K, set up automatic deposits into a Roth IRA. That’s what we’re doing right now at Betterment.

House Down Payment

We’re saving a big chunk of our extra income towards a house down payment right now.

We sold our first house to move into an apartment in a new city. We’re hoping to get into another house by next summer.

An increase in income is the perfect way to jumpstart saving for something big.

Car Savings

Ugh, cars are the worst. They completely stress me out because they break and every time they break it’s stupidly expensive.

Anyways, The next thing on our list to save for is a new-to-us car. Hopefully, one that never ever breaks. Ever. Do they make those?

Related Posts:

How We Live on Less Than $1500 per Month – Our Actual Budget

The 5 Biggest Ways We Save Big Money

17 Expenses You’re Forgetting to Budget For

⇒ How have you budgeted for an increase in your income? What are you saving for these days?

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