There are only 2 ways to get ahead financially – make more money or spend less.  Ideally, you do both.  This post deals with the ‘make more’ side of things.  More specifically, pay raises.

The topic has been on my mind because… (drumroll)… I just got a promotion at work (yay, me!)!! After getting the news, I allowed myself to be excited about it for an hour or two, then immediately started thinking about what to do with the extra dough ($240ish/month).  We’re lucky enough that we don’t need it just to stay afloat financially.  We could have decided to splurge on a big-ticket item (new living room couches, and patio furniture come to mind), but none stand out as being real needs or priorities.  One thing we did know for sure – we would NOT fall victim to ‘lifestyle inflation’ or ‘lifestyle creep’ – the biggest enemy of wealth-building.  Even if you’re not familiar with the terms, you’re surely familiar with the phenomenon – basically, ‘the more you make, the more you spend’.

This article is a great resource for strategies on conquering lifestyle inflation.

To borrow my youngest son’s favourite word, I am a hunormous (huge + enormous, for those who don’t think like a 4yo) fan of strategies #2 Set Short-Term and Long-Term Financial Goals, #3 Know Your Income & Expenses (seriously, are you tracking these yet?!?!?) and #5 Automate Your Finances, each one being an integral part of my personal finance management ‘system’.

As for #4 Use a Monthly Budget, I’ve never used a budget, monthly or otherwise, nor do I have any intention of starting. For me, tracking my income and expenses serves the same purpose. Different strokes for different folks, though.

As for #1 Hold Yourself Accountable, I suppose you, the readers of this blog (if indeed there are any!!), have become my de facto accountability partners!! Because I can’t possibly be wasteful with my money and then expect to build any cred as Loonie Sue, now can I?!

Strategy #6 Boost Retirement Contributions with Every Raise is the most important for today’s purposes.  The strategy is certainly sound.  Yet we didn’t follow it…  Why*? Well, our mortgage is due next month.  When we took it out 5 years ago (before I got serious about finances), we chose a 25-yr amortization period.  If we were like most, our renewal mortgage would have a new amortization period of (at least) 20 years.  But our mortgage is now our only debt and WE. DON’T. LIKE. IT.  We want it gone.  Pronto.  So, we’ve decided to accelerate our repayment by shortening our mortgage period by 5 years, going to 15 years instead.  That’ll mean higher bi-weekly payments.  So, that’s where my raise dollars are going.  And if my raise is higher then the higher mortgage payment, then the extra dollars will go in the kids’ RESP, and once that is maxed out for the year, into our TFSAs.  It feels good knowing that each extra dollar will have a specific job to do, instead of us just spending them unconsciously.  And we plan to do the same with every other raise we get from now on (if we’re so lucky to keep getting them).

This line at the end of the article sums up the strategies – and my money philosophy – perfectly: “When you tell your money what to do, it listens. And when you don’t, it disappears.”

So. what will YOU tell your extra money to do??


* I should  probably mention that as a federal public servant, my pension contributions are already fairly significant and will automatically increase with each raise in any event, so boosting retirement contributions is not our top priority when in receipt of extra dollars.