Comments on: Saving Strategy: Bank your Raises/Extra Income

By: Bankruptcy Saskatoon

Bankruptcy Saskatoon — Fri, 29 May 2009 14:09:52 +0000

I agree! It is a great way to save up for something important you wish to purchase or invest in the future. There are many banks that offer savings account with a unique feature of breaking down your funds into different sub-accounts. For example, you can have one sub-account for your car fund which will tell you exactly how much time it will take to reach your goal with your current monthly savings. Accordingly, you can choose to save more and reduce the wait time! Saving any additional income may it be a GST cheque or a pay raise can be put to use efficiently.

By: Stephen

Stephen — Wed, 15 Apr 2009 13:45:38 +0000

My wife and I tend to get large tax refunds due to large charitable donations and contributions to RRSPs. While I am fully aware of the ability to reduce taxes at the source and do almost anything I can to reduce interest costs on fees on all the services in my life … this is one area that I purposefully do not touch.

I don’t find the extra hassle and administration to be worth it in reallocating the smaller amounts monthly. I also like the psychological effect of having a lower income that encourages tighter spending control. I figure that the small cost in lost interest or other benefit to be worth it to have this forced savings plan. When I get the large refund I can then give some serious consideration to how this money can best be used as a lump sum or how it can be split accordingly.

Chances are I might be losing out slightly because of this over time … but I wouldn’t be surprised if the numbers were crunched including behaviour and decision making that I am actually ahead because of this. With interest rates so low rate now that probability is even higher.

By: SingleGuyMoney

SingleGuyMoney — Sun, 12 Apr 2009 21:04:43 +0000

Great post. Starting last year, I made a conscious effort to make sure my expenses didn’t magically increase to meet my new income. So far, I’ve been successful and I’ve even lowered my monthly expenses.

By: Patrick

Patrick — Fri, 10 Apr 2009 16:05:29 +0000

Looks like your strategy would fit one of the last two diagrams I've got here.

By: Lyne

Lyne — Thu, 09 Apr 2009 17:47:41 +0000

srichardhfx, DAvid,

per PAY, not per DAY! I wish…

And I’m a federal agency employee, this is an increase in level (to the top level of the group) and is according to my collective agreement, so not a huge jump, no.

As to the rest of the assumptions, I’m not exactly entry-level in my field as I just hit 6 figures (and I won’t even talk about my age ;-)), and am going on this vacation with a special someone, but after a failed relationship many years ago, I have decided that I prefer to keep finances, and homes, separate :-)

By: Canadian Finance

Canadian Finance — Thu, 09 Apr 2009 16:16:48 +0000

Scott’s right about the huge tax returns. If this is money that you have coming to you, why pay that much in taxes from your paycheque in the first place?

I wrote an article in February about the two forms you can fill out to reduce the amount you pay in taxes…

http://canadianfinanceblog.com/2009/02/23/tax-refunds-are-a-bad-thing.htm

By: DAvid

DAvid — Thu, 09 Apr 2009 15:01:00 +0000

Scott,
Possibly now is when you compare your job & stress situation to that of a forestry worker, mill worker, manufacturer, or auto worker, and balance the greater certainty of continuing employment, against the spectre of job loss? Historically, government employees exchanged industry standard wages for job security, and although this has been put to the test in recent times, the public’s demand for the services provided by the public sector largely continues through all stages of the economy.

DAvid

By: DAvid

DAvid — Thu, 09 Apr 2009 14:55:23 +0000

srichardhfx,
Lyne states $150 per PAY, about $10 per day, or $1.20 per hour, not an unreasonable increment for someone who has recently entered their field, and is gaining the “experience” increments contained in many contracts.

Lyne appears single (MY next vacation), which further suggests recent entry to a profession.

DAvid

By: Scott

Scott — Thu, 09 Apr 2009 13:55:13 +0000

Any ideas on how to get a raise if you do not work in the private sector? What if someone (I’m sobbing already) works in the soul-crushing, salary-capped/controlled world of public service?

p.s. — WHY, oh WHY, does ANYONE still pride themselves on getting a tax RETURN?!? mgronqui stated a $4000 return! Yikes! That’s a $4000 interest FREE loan you just gave the government! If anything, you should get NO tax refund, or even OWE taxes. Use that money throughout the year to make YOU money — it is YOUR money after all!

By: srichardhfx

srichardhfx — Thu, 09 Apr 2009 12:45:06 +0000

Lyne: A $150 daily raise? May I ask what type of work you do? That`s wicked!! Your industry is definately recession-proof ;) Oh and go to Paris, c’est magnifique!!

By: Lyne

Lyne — Thu, 09 Apr 2009 11:44:41 +0000

I just got a raise of 150$ per pay. As soon as I saw the first pay check, I increased the automated transfers to the emergency fund by 50$ and increased the investment into TD e-funds by 100$. I don’t need that money, I already live comfortably.
Now I’m trying to decide what to do with the income tax refund that I should get soon. I’ll probably put half on the car loan, and maybe put the rest to help pay for my next vacation in June (I’m planning a week in Paris).

By: mgronqui

mgronqui — Thu, 09 Apr 2009 05:09:02 +0000

My 4k income tax return is going all to one of my credit cards which I used to pay off my car with an interest rate promotion. I should be debt free by 2010!

I’ve chosen to pay my debt first before saving anything.

By: fern

fern — Wed, 08 Apr 2009 20:59:05 +0000

i was very good this year. I took my net $4500 bonus and partially funded my IRA with it. I took my $600 IRS refund and put that in my emergency savings account.

By: rob

rob — Wed, 08 Apr 2009 19:54:26 +0000

I use a budgeting software that is similar to the jar approach as in Til Debt Do Us Part. It’s a great show (all the episodes are on the slice.ca website).

I’m a recent university grad and have been working since June, so I haven’t really dealt with this yet! However, when I generate income outside of work I usually like to set it aside for things that I want to purchase, or may in the future. This is one of the reasons that I take on these extra jobs, along with resume building. There are very few things that are on my “want” list, and most of them are items that will last me for several years or decades.

My general plan with increases in salary is to allocate a large chunk towards savings and some for vacation. In the next few years I’ll either be moving to a bigger place, or looking to purchase some sort of dwelling, so that part of my budget will have to increase, as well.

By: Al

Al — Wed, 08 Apr 2009 17:25:46 +0000

QCash – thanks for taking responsibility for the weather. I knew someone was to blame.

To all those who put their window scrapers away. GET THEM BACK OUT, or at least use your arm to wipe off the back window.

Save on.

By: QCash

QCash — Wed, 08 Apr 2009 16:42:12 +0000

FT is right. All our saving and debt reduction early on helped us create a frugal atmosphere around our house. The flipside is that we are also not afraid to splurge on the things that bring us enjoyment (see my 350Z as an example <- as an aside, I apologize to everyone for the lousy weather this week, I pulled the car out of the garage last weekend and that is why it snowed yesterday).

My wife and I enjoy the holidays with the kids and we don’t mind eating out from time to time knowing we are able to afford it.

DGI – I also put a percentage of our income back into the market to keep growing the value of my investment income, but you also have to have a goal in mind.

Qcash

By: Kirk S.

Kirk S. — Wed, 08 Apr 2009 15:46:39 +0000

For myself, for each raise I get, I save approximately 50%, put approximately 25% on loans (whether it be upping the mortgage or paying off student loans), and the last 25% I just leave for myself (so I get a bit of a raise)

I have been doing this for my last three years worth of raises and it has not been difficult (and the spreadsheet looks better each month!)

By: Scrotzy

Scrotzy — Wed, 08 Apr 2009 15:19:36 +0000

srichardhfx : I have to agree with you in regards to Gails Magic Jar approach. I used it for a full year while changing careers and it is the best way to stop the Tim Horton’s. Unless you have a massive amount of Timmies stock its IMO the biggest waste of money out there. Basically has replaced smoking.. People are addicted.

By: DAvid

DAvid — Wed, 08 Apr 2009 14:56:07 +0000

FrugalTrader & Ben,
Great to see you realized this benefit early, when the advantages are multiplied. Usually pay increases (as a percentage of income) are greatest in the first few years, as you gain those experience increments. Once you have been in the workforce some years, the increases are smaller. However, it makes sense to apply increased income to reduce debt, rather than increase spending.

We used cost of living increments to increase our bi-weekly mortgage payment each year, and applied lump sum income (tax returns) as well to reduce it’s amortization. By taking these steps over 5 years, we reduced our amortization from 25 years to about 9.5 years, gaining major savings in interest costs.

It’s a painless way to get rid of debt!

DAvid

By: Canadian Finance

Canadian Finance — Wed, 08 Apr 2009 14:38:56 +0000

I could do better at this. I have increased my savings each year so in a way I’m sort of doing it… but it’s not a straight ‘I’ve got a $6000 raise so now I will save $500 more a month.’