Wow, a 7% annual increase is awesome! The challenge now is what to do with it. Of course on pay day the kids and I had a lovely pizza evening to celebrate, but there after it will be wise spending. So what is the wisest way to handle an annual increase?
I went back and found a Just One Lap 100 second video from a year or two ago on “What to do with your salary increase” (see below). Right, so Simon advised that whatever your annual increase, there is a simple rule: take your annual increase and split it in to three; a third to spend and enjoy life just a little bit more, a third to pay off debt and a third to invest. Hey, it sounds a bit like my story to my kids about their pocket money!
But as much as I really like this approach, I think there is actually another important reality, inflation! So perhaps what I will do is this: a third of the annual increase to spend and enjoy life just a little bit more; a third to put into my home loan (which is a combination of paying off debt and saving – Simon’s points two and three combined into only one third); and the final third to cover my rising inflation-related bills (amenities, insurances, petrol etc.).
So hopefully this will take the squeeze out of all the increasing costs, go a little further to paying off the bond, and allow for a little more living (perhaps it’s time to re-upholster the couch). The bottom line is that a 7% annual increase may sound good, but in reality not much is going to change. But at least I can be pleased that I have been wise and can try to keep up with my rising monthly bills.
In my next column I’m going to explore our personal security – do we need to increase our home security, and can I afford to?