Give Yourself a Raise This MonthJuly 3, 2015
Is there anyone out there who doesn’t love getting a raise at work? It’s great seeing the value of your skills and hard work rewarded in a tangible way – through more money. The downside is that we often have to work up the nerve to ask our boss for that much-desired raise. While it’s highly recommended that you periodically renegotiate for a higher salary at work, it’s actually a lot easier than you might think to start seeing big increases in your wealth with the money you’re making right now. It begins by realizing that your income provides actual wealth not by how much of it you spend, but how much of it you keep. Even the best raise won’t do you any good if you use it to increase your spending.
Avoiding the pay cuts
What so few of us truly understand is this correlation of our spending habits to our income. We think of our take home pay as how much we’re able to spend rather than how much we’re able to save. Expenses such as fuel, cable packages, new cars and restaurants are largely considered “living expenses”, but it’s rare to consider them what they truly are – pay cuts. If you make $60,000 a year and rush out to buy a $15,000 car, your actual salary has now become $45,000. You might be thinking that a car is a great reward for your hard work, but the reality is that, as humans, we’re pretty awesome at getting tired of even the most amazing things. That new car will soon become just your boring old car, and you may even start truly feeling that $15,000 pay cut, especially if you took out a loan to buy the car – rather than a $15,000 pay cut, it would be more like a $20,000-$25,000 cut thanks to the added interest.
In the excellent book Your Money or Your Life, the authors describe this way of thinking as calculating your Real Hourly Wage. The process of deducting the costs associated with your work – commuting, resulting car maintenance, food during the work day, clothing for work – all must be considered when calculating your true wages. Not only that, but we must consider the time that we put into these aspects of our job. An hour commute each day is one hour that’s spent towards your job, but you don’t get paid for it. You might have an hourly rate of $50/hr, but if your time and money is being spent on these work expenses, you might actually have an hourly rate of only $10/hr. If that’s the case, it’s time to give yourself a raise.
Giving yourself a raise
If we consider our spending as pay cuts, it means that the reverse is true for saving money – you’re essentially giving yourself a raise. Moving from an expensive cable package to a streaming service such as Netflix could mean a raise of around $1,000 a year. What if you cancelled your expensive cell phone plan and moved to a no-contract service such as Republic Wireless? That’s probably another $1,000 in your pocket each year. If you learn to live on a single shared vehicle between you and your spouse, you earned yourself an extra $10,000 this year. What could you do with an extra $10,000?
The point here is that changes in our spending habits produce powerful results to our overall wealth. We’re often willing to put in months of hard work for only moderate raises, when we could also perform some hard work in our personal lives in giving up unnecessary luxuries and expenses to achieve a similar, if not higher raises. In many cases, giving up those luxuries leads to greater increases than your job could provide.
If you want to begin seeing true changes in your finances, it begins by giving yourself a much-needed raise. If you’ve never taken stock of where exactly your money is going each month, it’s very likely that there are expenses that you could do without, and getting rid of them would mean more money in your pocket that can be put to better use through donating, investing, or any other expense that you feel could provide you with increased satisfaction.