I was recently given a 14% raise and...

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justsomeguy2018
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I was recently given a 14% raise and...

Post by justsomeguy2018 »

Apologies for the "humble brag" post, but I learned megacorp is giving me a 14% raise which is set to take effect next month, which will translate to a little under $1k/mo incremental net after taxes. Which surprised me as I know most companies are hoarding cash and furloughing/laying off, so I was not expecting any kind of salary increase and possibly even a layoff, depending on lingering impact of pandemic. My understanding is only a select few employees were given this kind of salary increase (apparently I am believed to be a high quality employee). I am also not sure if maybe my current salary was considered to be under market value, or undervalued to my peers, and they were trying to bring it more in alignment? The official explanation is I am a highly valued employee that's impressed leadership.

Why am I posting this? Well, I guess I just wanted to sound off on what's running through my head from this news.
  • I've been staying pretty conservative with EF (~20 months) over pandemic-related employment concerns - should this help ease those concerns? It would seem silly to value me enough to give me a large raise, but then lay me off shortly thereafter. Or does the larger salary make me more expendable? Should I continue to be as cautious? I guess potentially if things turn south enough, no one should be considered safe. My company is an International company that does business all around the world, so not limited to U.S. market, FWIW.
  • From a psychological perspective I was not expecting to reach this income level until at least another 4 to 6 years, if ever (assuming annual merit increases of 2% to 4%). The extra income has me feeling a little looser with the budget. E.g. can we afford a more expensive house if/when we move, eat more restaurant meals, etc. Wondering how to best manage budget discipline/lifestyle creep (or if I even should).
  • Not sure if this matters but our household is currently cash-flow positive after maxing out all tax advantaged accounts, so this is just icing on the cake. I guess I should just throw this in taxable once I start to receive it? (assuming no hiccups between now and when it takes effect). Other options could be mortgage paydown/529 contributions.
Anyone else ever received a large, unexpected income boost, and how did you handle it?
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JoeRetire
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Re: I was recently given a 14% raise and...

Post by JoeRetire »

justsomeguy2018 wrote: Sun Aug 02, 2020 1:52 pm Anyone else ever received a large, unexpected income boost, and how did you handle it?
Yes.

I thanked my boss, then carried on with my work. Other than saving more, nothing changed for us financially. We didn't move. We didn't buy more stuff. We didn't spend more. Our lifestyle stayed unchanged.
It's the end of the world as we know it. | It's the end of the world as we know it. | It's the end of the world as we know it. | And I feel fine.
Triple digit golfer
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Re: I was recently given a 14% raise and...

Post by Triple digit golfer »

What are you doing with your "extra money" now? Do more of that.
FarmWife
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Re: I was recently given a 14% raise and...

Post by FarmWife »

I would split it 3-4 ways, I'm not an all or nothing person.

30% taxable
30% mortgage paydown
30% 529's
10% fun money

It was an awesome feeling to pay off the house, in my dark moments it's comfort to know we'll have a roof over our heads. College is beastly and stupidly expensive. Anything more you can do there is good (to a point). Give yourself options with more in taxable, and reward yourself with a little fun money!
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justsomeguy2018
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Re: I was recently given a 14% raise and...

Post by justsomeguy2018 »

Triple digit golfer wrote: Sun Aug 02, 2020 2:01 pm What are you doing with your "extra money" now? Do more of that.
I have automated quarterly deposits into taxable and 529. Guess I could increase the amount of those deposits to account for the additional income.

What about the EF? Is it less risky to reduce that and invest it, or should I still be cautious given everything that's going on?
runner3081
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Re: I was recently given a 14% raise and...

Post by runner3081 »

justsomeguy2018 wrote: Sun Aug 02, 2020 1:52 pm Anyone else ever received a large, unexpected income boost, and how did you handle it?
Yes, about 2.5 years ago. Just under 30%. Was a promotion that happened much earlier than ever expected.

I did two things.

1) Increased monthly post-tax investments
2) Increased 529 monthly contributions

Those increases covered 100% of the take home increase.

Once that was done, not a thing, other than going right back to work :)

Congrats to you!
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justsomeguy2018
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Re: I was recently given a 14% raise and...

Post by justsomeguy2018 »

FarmWife wrote: Sun Aug 02, 2020 2:05 pm I would split it 3-4 ways, I'm not an all or nothing person.

30% taxable
30% mortgage paydown
30% 529's
10% fun money

It was an awesome feeling to pay off the house, in my dark moments it's comfort to know we'll have a roof over our heads. College is beastly and stupidly expensive. Anything more you can do there is good (to a point). Give yourself options with more in taxable, and reward yourself with a little fun money!
Just curious, how much is the tax/insurance on your home? It is so high here that it is almost like its own separate mortgage that would still need to be paid even if house is paid off.
runner3081
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Re: I was recently given a 14% raise and...

Post by runner3081 »

justsomeguy2018 wrote: Sun Aug 02, 2020 2:13 pm
Triple digit golfer wrote: Sun Aug 02, 2020 2:01 pm What are you doing with your "extra money" now? Do more of that.
I have automated quarterly deposits into taxable and 529. Guess I could increase the amount of those deposits to account for the additional income.

What about the EF? Is it less risky to reduce that and invest it, or should I still be cautious given everything that's going on?
EF should be based on expenses.

Assuming your expenses don't change, I wouldn't do anything different. Unless of course, you are going to increase expenses.
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Re: I was recently given a 14% raise and...

Post by Jack FFR1846 »

I think your 20 month EF is completely reasonable, given the times. Congratulations on the raise. I do agree that there's a good chance that the company did salary surveys and found that they were well below market. Have others in similar jobs at your company left for better pay?

If you want this to really help you, don't go looking for a bigger house, more meals out. That's called lifestyle creep and can very easily result in you having less money even though your salary is higher.

And it is not beyond reason to think that Megacorp makes a decision to eliminate your group and then indeed, you're without a job, regardless of the raise. I've worked for plenty of companies where one hand doesn't know what the other is doing, even relocating entire groups, then realizing it was a stupid move and relocating the group where they were before.
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justsomeguy2018
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Re: I was recently given a 14% raise and...

Post by justsomeguy2018 »

runner3081 wrote: Sun Aug 02, 2020 2:14 pm
justsomeguy2018 wrote: Sun Aug 02, 2020 2:13 pm
Triple digit golfer wrote: Sun Aug 02, 2020 2:01 pm What are you doing with your "extra money" now? Do more of that.
I have automated quarterly deposits into taxable and 529. Guess I could increase the amount of those deposits to account for the additional income.

What about the EF? Is it less risky to reduce that and invest it, or should I still be cautious given everything that's going on?
EF should be based on expenses.

Assuming your expenses don't change, I wouldn't do anything different. Unless of course, you are going to increase expenses.
Yes, but I boosted it a bit excessively (~20+ months) due to employment concerns from pandemic as I am pretty risk averse person. I am just wondering if the risk calculation changes given this development. I.e. if they value me enough and have the cash to give me a salary boost, then layoff becomes less likely in the near-term. So I could get away with shortening it to say, 16 months. But I don't want to take anything for granted.
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BrandonBogle
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Re: I was recently given a 14% raise and...

Post by BrandonBogle »

justsomeguy2018 wrote: Sun Aug 02, 2020 1:52 pm It would seem silly to value me enough to give me a large raise, but then lay me off shortly thereafter. Or does the larger salary make me more expendable?
Jack FFR1846 wrote: Sun Aug 02, 2020 2:18 pm And it is not beyond reason to think that Megacorp makes a decision to eliminate your group and then indeed, you're without a job, regardless of the raise. I've worked for plenty of companies where one hand doesn't know what the other is doing, even relocating entire groups, then realizing it was a stupid move and relocating the group where they were before.
Exactly. MegaCorps are not exactly known for behaving logically or doing anything that would make sense in personal life.
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justsomeguy2018
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Re: I was recently given a 14% raise and...

Post by justsomeguy2018 »

Jack FFR1846 wrote: Sun Aug 02, 2020 2:18 pm I think your 20 month EF is completely reasonable, given the times. Congratulations on the raise. I do agree that there's a good chance that the company did salary surveys and found that they were well below market. Have others in similar jobs at your company left for better pay?
Not that I am aware of. In fact they have been doing a lot of layoffs/furloughs which is I was surprised at the raise. I had an outstanding year-end review so I was expecting a higher than average raise, but typically that would be like 5%. Maybe a combination of year-end review and in-group salary comparisons?
Jack FFR1846 wrote: Sun Aug 02, 2020 2:18 pm If you want this to really help you, don't go looking for a bigger house, more meals out. That's called lifestyle creep and can very easily result in you having less money even though your salary is higher.

And it is not beyond reason to think that Megacorp makes a decision to eliminate your group and then indeed, you're without a job, regardless of the raise. I've worked for plenty of companies where one hand doesn't know what the other is doing, even relocating entire groups, then realizing it was a stupid move and relocating the group where they were before.
That's a fair point. That is still a concern of mine - they eliminate our group.
Goal33
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Re: I was recently given a 14% raise and...

Post by Goal33 »

My company went through with promotions / merit increases in 2018. 2 weeks later they eliminated my department and we all had 30 days to find jobs internal or take severance. I don’t think a recent pay increase means you’re safe at a macro level. As an individual, you’re probably safer than the next guy 6 feet away.
runner3081
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Re: I was recently given a 14% raise and...

Post by runner3081 »

justsomeguy2018 wrote: Sun Aug 02, 2020 2:19 pm
runner3081 wrote: Sun Aug 02, 2020 2:14 pm
justsomeguy2018 wrote: Sun Aug 02, 2020 2:13 pm
Triple digit golfer wrote: Sun Aug 02, 2020 2:01 pm What are you doing with your "extra money" now? Do more of that.
I have automated quarterly deposits into taxable and 529. Guess I could increase the amount of those deposits to account for the additional income.

What about the EF? Is it less risky to reduce that and invest it, or should I still be cautious given everything that's going on?
EF should be based on expenses.

Assuming your expenses don't change, I wouldn't do anything different. Unless of course, you are going to increase expenses.
Yes, but I boosted it a bit excessively (~20+ months) due to employment concerns from pandemic as I am pretty risk averse person. I am just wondering if the risk calculation changes given this development. I.e. if they value me enough and have the cash to give me a salary boost, then layoff becomes less likely in the near-term. So I could get away with shortening it to say, 16 months. But I don't want to take anything for granted.
The more you make, the bigger layoff target you are.
sailaway
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Re: I was recently given a 14% raise and...

Post by sailaway »

Does maxing include MBR, if available to you?

Two years in, our cash EF is actually slightly lower than usual because we can save the entirety of ESPP and RSUs, whereas we used to cash out some occasionally. We also front load the 401k, but all of this only works by slowly drawing down the cash bonus, so the EF is pretty diminished this time of year. Next month we will start getting paychecks that cover expenses and start rebuilding the cash reserves. If there is a lay off instead, well we are FI, so my main concern is what we are going to do with ourselves, rather than how we pay the bills.

We banked the money the first year. The second year, we did a boat refit and reached our FI number. At that point we agreed to travel a bit more, but the pandemic had other plans, so back to banking it.

We don't believe in increasing our budget then going to look for things to spend it on, as many seem to suggest with a raise (save X, spend Y). We find things/experiences we want, then look at how it will affect our long term plans and set our priorities. This means that our actual budget increases are divorced from pay increases. The default response to an increase is save more. It is ridiculously exciting to make a choice to forego some savings to spend on something else, then find out that the raise granted a few months later is going to cover the difference, anyway :)
lazynovice
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Re: I was recently given a 14% raise and...

Post by lazynovice »

Have you estimated the tax impact? I’d make sure you know what it will be. Make sure you are within the safe harbor for underpayment penalties. With a 20 month EF, I don’t think you need to put anything aside for taxes. You have it already. I think 20 months is excessive and I am pretty conservative but if you feel better having it, understand the drag it equates to, then keep it.

I have been in your position several times. We maxed out tax advantaged savings, beefed up EF, paid off house, funded 529s and taxable college accounts, hired a house cleaner and lawn guy, took a vacation every year staying in nicer VRBOs than we had before (i.e. on the beach instead of a half mile from the beach), made improvements to our house that kept us in it longer than we might otherwise have stayed and invested in taxable.
Triple digit golfer
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Re: I was recently given a 14% raise and...

Post by Triple digit golfer »

justsomeguy2018 wrote: Sun Aug 02, 2020 2:13 pm
Triple digit golfer wrote: Sun Aug 02, 2020 2:01 pm What are you doing with your "extra money" now? Do more of that.
I have automated quarterly deposits into taxable and 529. Guess I could increase the amount of those deposits to account for the additional income.

What about the EF? Is it less risky to reduce that and invest it, or should I still be cautious given everything that's going on?
If the EF was adequate before, what changed? Presumably your taxable investments could also be tapped in an emergency.

Look at your emergency fund separate from the salary increase. Were you increasing it before or investing in taxable?
MathWizard
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Re: I was recently given a 14% raise and...

Post by MathWizard »

No,I have had to make the case for anything but a standard everybody gets X percent.

The one time I was able to negotiate a substantial raise, I started maxing out both my retirement and my wife's.
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Re: I was recently given a 14% raise and...

Post by Mudpuppy »

justsomeguy2018 wrote: Sun Aug 02, 2020 1:52 pm
  • I've been staying pretty conservative with EF (~20 months) over pandemic-related employment concerns - should this help ease those concerns? It would seem silly to value me enough to give me a large raise, but then lay me off shortly thereafter. Or does the larger salary make me more expendable? Should I continue to be as cautious? I guess potentially if things turn south enough, no one should be considered safe. My company is an International company that does business all around the world, so not limited to U.S. market, FWIW.
Where is your emergency fund "parked", so to speak? I don't see an issue with your emergency fund, but there are ways to structure it so it's not just sitting there doing nothing.
justsomeguy2018 wrote: Sun Aug 02, 2020 1:52 pm
  • From a psychological perspective I was not expecting to reach this income level until at least another 4 to 6 years, if ever (assuming annual merit increases of 2% to 4%). The extra income has me feeling a little looser with the budget. E.g. can we afford a more expensive house if/when we move, eat more restaurant meals, etc. Wondering how to best manage budget discipline/lifestyle creep (or if I even should).
This is an understandable psychological response. The best method I've found to monitor for lifestyle creep is to be cognizant of "needs" vs "wants", and then to be careful in selecting what "wants" I spend money on and, most importantly, to make sure I'm not making up some absurd internal justification for spending the money. For example, my 10-year old computer was working, but VMware ended support for its processor and I use VMware extensively. So even though I didn't absolutely need a new computer, I had a compelling reason for wanting one and I could afford one. If I came up with a reason every year to upgrade, that would be absurd, but using this justification for upgrading after a decade was okay in my book.
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Re: I was recently given a 14% raise and...

Post by tibbitts »

justsomeguy2018 wrote: Sun Aug 02, 2020 1:52 pm Anyone else ever received a large, unexpected income boost...?
No.
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BrandonBogle
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Re: I was recently given a 14% raise and...

Post by BrandonBogle »

Mudpuppy wrote: Sun Aug 02, 2020 7:50 pm This is an understandable psychological response. The best method I've found to monitor for lifestyle creep is to be cognizant of "needs" vs "wants", and then to be careful in selecting what "wants" I spend money on and, most importantly, to make sure I'm not making up some absurd internal justification for spending the money. For example, my 10-year old computer was working, but VMware ended support for its processor and I use VMware extensively. So even though I didn't absolutely need a new computer, I had a compelling reason for wanting one and I could afford one. If I came up with a reason every year to upgrade, that would be absurd, but using this justification for upgrading after a decade was okay in my book.
I've done the same, both in the general and the specific. The last computer I bought was a 2006 iMac and had a hand-me-down 2008 MacBook Pro (in 2012). I just got a 2019 MBP around October last year. I figured 11 years between paying for a computer or 8 years between machines is reasonable, especially when I'm otherwise meeting all my goals.

That said, I did splurge 5 years ago on a Tesla, so that also meant I needed to watch the "wants" category!
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Re: I was recently given a 14% raise and...

Post by stimulacra »

justsomeguy2018 wrote: Sun Aug 02, 2020 1:52 pm Anyone else ever received a large, unexpected income boost, and how did you handle it?
Congrats!

In the past I've either just bumped up some retirement savings or green lit some lifestyle upgrade that my family has been advocating for.

For smaller boosts I don't change anything.
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Re: I was recently given a 14% raise and...

Post by anon_investor »

justsomeguy2018 wrote: Sun Aug 02, 2020 1:52 pm Apologies for the "humble brag" post, but I learned megacorp is giving me a 14% raise which is set to take effect next month, which will translate to a little under $1k/mo incremental net after taxes. Which surprised me as I know most companies are hoarding cash and furloughing/laying off, so I was not expecting any kind of salary increase and possibly even a layoff, depending on lingering impact of pandemic. My understanding is only a select few employees were given this kind of salary increase (apparently I am believed to be a high quality employee). I am also not sure if maybe my current salary was considered to be under market value, or undervalued to my peers, and they were trying to bring it more in alignment? The official explanation is I am a highly valued employee that's impressed leadership.

Why am I posting this? Well, I guess I just wanted to sound off on what's running through my head from this news.
  • I've been staying pretty conservative with EF (~20 months) over pandemic-related employment concerns - should this help ease those concerns? It would seem silly to value me enough to give me a large raise, but then lay me off shortly thereafter. Or does the larger salary make me more expendable? Should I continue to be as cautious? I guess potentially if things turn south enough, no one should be considered safe. My company is an International company that does business all around the world, so not limited to U.S. market, FWIW.
  • From a psychological perspective I was not expecting to reach this income level until at least another 4 to 6 years, if ever (assuming annual merit increases of 2% to 4%). The extra income has me feeling a little looser with the budget. E.g. can we afford a more expensive house if/when we move, eat more restaurant meals, etc. Wondering how to best manage budget discipline/lifestyle creep (or if I even should).
  • Not sure if this matters but our household is currently cash-flow positive after maxing out all tax advantaged accounts, so this is just icing on the cake. I guess I should just throw this in taxable once I start to receive it? (assuming no hiccups between now and when it takes effect). Other options could be mortgage paydown/529 contributions.
Anyone else ever received a large, unexpected income boost, and how did you handle it?
OP if you have not looked into refinancing your mortgage, you should. Historically low rates, and many lenders are offering generous credits that cover all cost, so there is 0 break even for refinancing. Not sure what your current mortgage rate is or how many years you have left, but potentially if you can refi for a low enough rate, you might be able to significantly shorten your mortgage length (even more so if you want to use your increased cash flow towards that).

If 20 months EF let you sleep at night, I would not really change that right now. Do you have a large taxable account? I used to carry a very large emergency fund (close to 1 year) until my taxable account grew to over 1 year's worth of expenses, at which point I reduced my emergency fund to 6 months. Something to consider.

I would definitely look into whether your 401k has the features that allow for the "mega backdoor roth".

After that I would recommend investing in a taxable account.
Normchad
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Re: I was recently given a 14% raise and...

Post by Normchad »

Congratulations, that is awesome news. Good on you!

Since you don’t need the money for current expenses, I’d consider the following.

Take 1 month worth of increased income, and indulge yourself with something. Maybe a weekend getaway for you and spouse? Power tools? Something you wouldn’t ordinarily do.

The rest of it, split it between extra mortgage payments and your after tax investing accounts.
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Re: I was recently given a 14% raise and...

Post by geerhardusvos »

justsomeguy2018 wrote: Sun Aug 02, 2020 1:52 pm Apologies for the "humble brag" post, but I learned megacorp is giving me a 14% raise which is set to take effect next month, which will translate to a little under $1k/mo incremental net after taxes. Which surprised me as I know most companies are hoarding cash and furloughing/laying off, so I was not expecting any kind of salary increase and possibly even a layoff, depending on lingering impact of pandemic. My understanding is only a select few employees were given this kind of salary increase (apparently I am believed to be a high quality employee). I am also not sure if maybe my current salary was considered to be under market value, or undervalued to my peers, and they were trying to bring it more in alignment? The official explanation is I am a highly valued employee that's impressed leadership.

Why am I posting this? Well, I guess I just wanted to sound off on what's running through my head from this news.
  • I've been staying pretty conservative with EF (~20 months) over pandemic-related employment concerns - should this help ease those concerns? It would seem silly to value me enough to give me a large raise, but then lay me off shortly thereafter. Or does the larger salary make me more expendable? Should I continue to be as cautious? I guess potentially if things turn south enough, no one should be considered safe. My company is an International company that does business all around the world, so not limited to U.S. market, FWIW.
  • From a psychological perspective I was not expecting to reach this income level until at least another 4 to 6 years, if ever (assuming annual merit increases of 2% to 4%). The extra income has me feeling a little looser with the budget. E.g. can we afford a more expensive house if/when we move, eat more restaurant meals, etc. Wondering how to best manage budget discipline/lifestyle creep (or if I even should).
  • Not sure if this matters but our household is currently cash-flow positive after maxing out all tax advantaged accounts, so this is just icing on the cake. I guess I should just throw this in taxable once I start to receive it? (assuming no hiccups between now and when it takes effect). Other options could be mortgage paydown/529 contributions.
Anyone else ever received a large, unexpected income boost, and how did you handle it?
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Re: I was recently given a 14% raise and...

Post by Grt2bOutdoors »

Don't fall into the upgrade your lifestyle routine and don't think that because you got this huge raise that you can't fall victim to a layoff. I've known colleagues who were considered high performers, given accolades, raises and the following year be shown the door. Happy for your raise, but if you must upgrade your lifestyle, do it by no more than 10% of the additional income, the rest you save/invest. As for mortgage paydown, what is your current rate of interest on your mortgage and how many years do you have left on it? With rates at all time lows, you may save more money by potentially refinancing into a lower rate or a shorter term. Have you run the numbers? What's wrong with your current home that you are considering an upgrade into a more expensive home? Bigger means higher expenses, not the same or less, but more.
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Re: I was recently given a 14% raise and...

Post by White Coat Investor »

justsomeguy2018 wrote: Sun Aug 02, 2020 1:52 pm Apologies for the "humble brag" post, but I learned megacorp is giving me a 14% raise which is set to take effect next month, which will translate to a little under $1k/mo incremental net after taxes. Which surprised me as I know most companies are hoarding cash and furloughing/laying off, so I was not expecting any kind of salary increase and possibly even a layoff, depending on lingering impact of pandemic. My understanding is only a select few employees were given this kind of salary increase (apparently I am believed to be a high quality employee). I am also not sure if maybe my current salary was considered to be under market value, or undervalued to my peers, and they were trying to bring it more in alignment? The official explanation is I am a highly valued employee that's impressed leadership.

Why am I posting this? Well, I guess I just wanted to sound off on what's running through my head from this news.
  • I've been staying pretty conservative with EF (~20 months) over pandemic-related employment concerns - should this help ease those concerns? It would seem silly to value me enough to give me a large raise, but then lay me off shortly thereafter. Or does the larger salary make me more expendable? Should I continue to be as cautious? I guess potentially if things turn south enough, no one should be considered safe. My company is an International company that does business all around the world, so not limited to U.S. market, FWIW.
  • From a psychological perspective I was not expecting to reach this income level until at least another 4 to 6 years, if ever (assuming annual merit increases of 2% to 4%). The extra income has me feeling a little looser with the budget. E.g. can we afford a more expensive house if/when we move, eat more restaurant meals, etc. Wondering how to best manage budget discipline/lifestyle creep (or if I even should).
  • Not sure if this matters but our household is currently cash-flow positive after maxing out all tax advantaged accounts, so this is just icing on the cake. I guess I should just throw this in taxable once I start to receive it? (assuming no hiccups between now and when it takes effect). Other options could be mortgage paydown/529 contributions.
Anyone else ever received a large, unexpected income boost, and how did you handle it?
Yes. Happens all the time. I handle it the same way. I invest it, spend it, or give it away. If you can't decide between your debt and your two savings goals (along with a lifestyle upgrade or giving it away) then split the difference.

I would also invest 16 months or so of that emergency fund. 20 months is ridiculously conservative. 12 is very conservative. 6 is conservative.
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3504PIR
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Re: I was recently given a 14% raise and...

Post by 3504PIR »

justsomeguy2018 wrote: Sun Aug 02, 2020 2:13 pm
Triple digit golfer wrote: Sun Aug 02, 2020 2:01 pm What are you doing with your "extra money" now? Do more of that.
I have automated quarterly deposits into taxable and 529. Guess I could increase the amount of those deposits to account for the additional income.

What about the EF? Is it less risky to reduce that and invest it, or should I still be cautious given everything that's going on?
I know you didn’t ask me this question, but while reading your OP this question/ topic was the one that popped into my head from your wording.

To be totally honest, there is no other time in history where I would recommend increasing a 20 month EF except now. If I were in your shoes I would ramp it up to 24 months, re-evaluate the current situation and either stop or keep increasing it to 30 month and then again re-evaluate and if things are still the same, build it up to 36 month and then stop. I know this goes against traditional recommendations but I think a flexible approach in these times is warranted and by gradually applying this short term adjustment you leave yourself some flexibility to reallocate the funds later or have a better foundation if your situation goes south. You could easily move the money into taxable at a later date if things improve. I am assuming that you are making out retirement contributions but even if you are not, the advice is still what I would lean towards.

Congratulations on the raise! You must be preforming beyond their expectations.
000
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Re: I was recently given a 14% raise and...

Post by 000 »

3504PIR wrote: Mon Aug 03, 2020 12:35 am
justsomeguy2018 wrote: Sun Aug 02, 2020 2:13 pm
Triple digit golfer wrote: Sun Aug 02, 2020 2:01 pm What are you doing with your "extra money" now? Do more of that.
I have automated quarterly deposits into taxable and 529. Guess I could increase the amount of those deposits to account for the additional income.

What about the EF? Is it less risky to reduce that and invest it, or should I still be cautious given everything that's going on?
I know you didn’t ask me this question, but while reading your OP this question/ topic was the one that popped into my head from your wording.

To be totally honest, there is no other time in history where I would recommend increasing a 20 month EF except now. If I were in your shoes I would ramp it up to 24 months, re-evaluate the current situation and either stop or keep increasing it to 30 month and then again re-evaluate and if things are still the same, build it up to 36 month and then stop. I know this goes against traditional recommendations but I think a flexible approach in these times is warranted and by gradually applying this short term adjustment you leave yourself some flexibility to reallocate the funds later or have a better foundation if your situation goes south. You could easily move the money into taxable at a later date if things improve. I am assuming that you are making out retirement contributions but even if you are not, the advice is still what I would lean towards.

Congratulations on the raise! You must be preforming beyond their expectations.
+1

I have been preserving cash and actually increased cash allocation recently. I also have Gold.
CurlyDave
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Re: I was recently given a 14% raise and...

Post by CurlyDave »

justsomeguy2018 wrote: Sun Aug 02, 2020 2:13 pm
Triple digit golfer wrote: Sun Aug 02, 2020 2:01 pm What are you doing with your "extra money" now? Do more of that.
I have automated quarterly deposits into taxable and 529. Guess I could increase the amount of those deposits to account for the additional income.

What about the EF? Is it less risky to reduce that and invest it, or should I still be cautious given everything that's going on?
I am long retired, but other than my first few years of working when we had very little, I have never had an EF. I had an Emergency Plan. This was updated every six months or so and was essentially a list of assets and which ones we would tap in what order to handle an emergency. And the plan was not set in stone, it could be revised to meet market conditions at the time an emergency came up.

The first thing to be tapped was taxable investments. Bond allocation in taxable space should be very stable, not necessarily long or even intermediate term Treasuries, but very short term bonds. If the market is down draw on this first. If the market is up, sell stocks first.

Unless you have been hanging with entirely the wrong crowd there is no emergency that will require more than a month's worth of expenses in cold cash. Think about this: medical expense -- they send you a bill later, big ticket home maintenance -- they will finance short term, car repair -- not that much money. About the only legitimate thing that might require an immediate cash payment is bail, and that comes from hanging with the wrong crowd.

You will always have time to raise money from your brokerage in an emergency. Put that money to work for you.
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Third Son
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Re: I was recently given a 14% raise and...

Post by Third Son »

Every time I received a raise I increased my contribution to my 401k. When the raise was substantial, the increase was as well. That eventually allowed me to retire earlier than I had planned with enough savings to live comfortably.
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celia
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Re: I was recently given a 14% raise and...

Post by celia »

justsomeguy2018 wrote: Sun Aug 02, 2020 1:52 pm Apologies for the "humble brag" post, but I learned megacorp is giving me a 14% raise which is set to take effect next month, which will translate to a little under $1k/mo incremental net after taxes. Which surprised me as I know most companies are hoarding cash and furloughing/laying off, so I was not expecting any kind of salary increase and possibly even a layoff, depending on lingering impact of pandemic. My understanding is only a select few employees were given this kind of salary increase (apparently I am believed to be a high quality employee). I am also not sure if maybe my current salary was considered to be under market value, or undervalued to my peers, and they were trying to bring it more in alignment? The official explanation is I am a highly valued employee that's impressed leadership.
And I thought you were "just some guy..."

Good work! :beer
winterfan
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Re: I was recently given a 14% raise and...

Post by winterfan »

Congratulations on the raise! My husband was just given a substantial raise as well. We decided last night to put all our extra money in a our taxable account to invest. I agree with Curly Dave above about having an emergency plan. In a true emergency, we have other things to tap rather than a savings account earning nothing. We currently have about 5 months of bare bones expenses in cash. If my husband is let go from his job, we will get unemployment for 6 months. That would extend our savings significantly.
SQRT
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Re: I was recently given a 14% raise and...

Post by SQRT »

I got a large promotion when I was 49 years old. Probably an increase of 100-200% but it was mostly in incentive compensation (RSU’s and options) so I wasn’t able to spend much of it immediately, so I basically didn’t do anything. Ploughed the extra cash comp into more employer stock through employee loans. Maybe not the smartest approach, but stock did well, retired at 56.

Knowing what I know now I would have done it differently. Balance is best. Spend a little more, save a little more. Enjoy life as you go, since who knows how much more life you have left.
Last edited by SQRT on Tue Aug 04, 2020 8:16 am, edited 1 time in total.
Grt2bOutdoors
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Re: I was recently given a 14% raise and...

Post by Grt2bOutdoors »

White Coat Investor wrote: Mon Aug 03, 2020 12:22 am
justsomeguy2018 wrote: Sun Aug 02, 2020 1:52 pm Apologies for the "humble brag" post, but I learned megacorp is giving me a 14% raise which is set to take effect next month, which will translate to a little under $1k/mo incremental net after taxes. Which surprised me as I know most companies are hoarding cash and furloughing/laying off, so I was not expecting any kind of salary increase and possibly even a layoff, depending on lingering impact of pandemic. My understanding is only a select few employees were given this kind of salary increase (apparently I am believed to be a high quality employee). I am also not sure if maybe my current salary was considered to be under market value, or undervalued to my peers, and they were trying to bring it more in alignment? The official explanation is I am a highly valued employee that's impressed leadership.

Why am I posting this? Well, I guess I just wanted to sound off on what's running through my head from this news.
  • I've been staying pretty conservative with EF (~20 months) over pandemic-related employment concerns - should this help ease those concerns? It would seem silly to value me enough to give me a large raise, but then lay me off shortly thereafter. Or does the larger salary make me more expendable? Should I continue to be as cautious? I guess potentially if things turn south enough, no one should be considered safe. My company is an International company that does business all around the world, so not limited to U.S. market, FWIW.
  • From a psychological perspective I was not expecting to reach this income level until at least another 4 to 6 years, if ever (assuming annual merit increases of 2% to 4%). The extra income has me feeling a little looser with the budget. E.g. can we afford a more expensive house if/when we move, eat more restaurant meals, etc. Wondering how to best manage budget discipline/lifestyle creep (or if I even should).
  • Not sure if this matters but our household is currently cash-flow positive after maxing out all tax advantaged accounts, so this is just icing on the cake. I guess I should just throw this in taxable once I start to receive it? (assuming no hiccups between now and when it takes effect). Other options could be mortgage paydown/529 contributions.
Anyone else ever received a large, unexpected income boost, and how did you handle it?
I would also invest 16 months or so of that emergency fund. 20 months is ridiculously conservative. 12 is very conservative. 6 is conservative.
Have you ever been in a position of losing your employment for any period of time since earning your degree? You think a person can’t or won’t be out of work for a period longer than 12 months? There is no one size fits all but unemployment income hardly pays the expenses for most people reading this forum.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
dcabler
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Re: I was recently given a 14% raise and...

Post by dcabler »

Yes I have - I once got a 25% increase early in my career as part of corporate wide study of salaries vs. competitors.

What did I do? I hadn't yet maxed out my tax deferred space and since I was already cash flow positive, 100% of that raise went to the 401K.

Over the years, I probably got 2 or 3 other double-digit raises, mainly due to promotions, but for the last 15 years or so my raises have been inflation +/- as I am now in the salary compression, very late stage of my career. Fine by me since I've been saving all along and it's hard to move the needle much at this point anyway for what my portfolio returns by itself vs. incremental amounts I can add to it. Still, I save a fixed amount each month and I save all proceeds from ESPP and RSU's, unless there is an immediate need for a large expenditure (eg car, roof, etc).

59 years old with DW at 60. T-minus 0-3 years and counting with "0" if it is involuntary and "3" being when daughter graduates from college. Anything between those 2 is fine.

Cheers.
dcabler
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Re: I was recently given a 14% raise and...

Post by dcabler »

Grt2bOutdoors wrote: Tue Aug 04, 2020 7:23 am
White Coat Investor wrote: Mon Aug 03, 2020 12:22 am
justsomeguy2018 wrote: Sun Aug 02, 2020 1:52 pm Apologies for the "humble brag" post, but I learned megacorp is giving me a 14% raise which is set to take effect next month, which will translate to a little under $1k/mo incremental net after taxes. Which surprised me as I know most companies are hoarding cash and furloughing/laying off, so I was not expecting any kind of salary increase and possibly even a layoff, depending on lingering impact of pandemic. My understanding is only a select few employees were given this kind of salary increase (apparently I am believed to be a high quality employee). I am also not sure if maybe my current salary was considered to be under market value, or undervalued to my peers, and they were trying to bring it more in alignment? The official explanation is I am a highly valued employee that's impressed leadership.

Why am I posting this? Well, I guess I just wanted to sound off on what's running through my head from this news.
  • I've been staying pretty conservative with EF (~20 months) over pandemic-related employment concerns - should this help ease those concerns? It would seem silly to value me enough to give me a large raise, but then lay me off shortly thereafter. Or does the larger salary make me more expendable? Should I continue to be as cautious? I guess potentially if things turn south enough, no one should be considered safe. My company is an International company that does business all around the world, so not limited to U.S. market, FWIW.
  • From a psychological perspective I was not expecting to reach this income level until at least another 4 to 6 years, if ever (assuming annual merit increases of 2% to 4%). The extra income has me feeling a little looser with the budget. E.g. can we afford a more expensive house if/when we move, eat more restaurant meals, etc. Wondering how to best manage budget discipline/lifestyle creep (or if I even should).
  • Not sure if this matters but our household is currently cash-flow positive after maxing out all tax advantaged accounts, so this is just icing on the cake. I guess I should just throw this in taxable once I start to receive it? (assuming no hiccups between now and when it takes effect). Other options could be mortgage paydown/529 contributions.
Anyone else ever received a large, unexpected income boost, and how did you handle it?
I would also invest 16 months or so of that emergency fund. 20 months is ridiculously conservative. 12 is very conservative. 6 is conservative.
Have you ever been in a position of losing your employment for any period of time since earning your degree? You think a person can’t or won’t be out of work for a period longer than 12 months? There is no one size fits all but unemployment income hardly pays the expenses for most people reading this forum.
+1 on this. I've been between jobs probably 3 times. Twice I already had something lined up when I was notified because I could see the writing on the wall. Once was a surprise and I was out for 10 months. Unemployment basically covered COBRA, but it ran out before my next job. Between unemployment benefits and my EF and some frugality, I was covered for 9 months. At month 9 I had the new gig lined up, but I still had to dip into my investments a little bit to bridge the time to my first paycheck. In my case I would not have called 6 months "conservative" nor would I have called 12 "very conservative". I'd probably call 20 months conservative.

When you're between jobs for long periods, you do need to have a plan beyond just the EF. In my case, by a certain month, I was going to consider relocation and/or a career change. Fortunately, I didn't need to do either.
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dziuniek
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Re: I was recently given a 14% raise and...

Post by dziuniek »

First off... congrats and nicely done!

Secondly... 20 month EF is pretty sizeable but under current circumstances... I would get to 2 years, maybe.

There's bound to be stories soon about people who just got promoted/got a big raise and were laid off a month or two later. This isn't a scare, but it certainly is possible. What are your odds of finding different employment such that happen to you?
Annabel Lee
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Re: I was recently given a 14% raise and...

Post by Annabel Lee »

justsomeguy2018 wrote: Sun Aug 02, 2020 1:52 pm Apologies for the "humble brag" post, but I learned megacorp is giving me a 14% raise which is set to take effect next month, which will translate to a little under $1k/mo incremental net after taxes. Which surprised me as I know most companies are hoarding cash and furloughing/laying off, so I was not expecting any kind of salary increase and possibly even a layoff, depending on lingering impact of pandemic. My understanding is only a select few employees were given this kind of salary increase (apparently I am believed to be a high quality employee). I am also not sure if maybe my current salary was considered to be under market value, or undervalued to my peers, and they were trying to bring it more in alignment? The official explanation is I am a highly valued employee that's impressed leadership.

Why am I posting this? Well, I guess I just wanted to sound off on what's running through my head from this news.
  • I've been staying pretty conservative with EF (~20 months) over pandemic-related employment concerns - should this help ease those concerns? It would seem silly to value me enough to give me a large raise, but then lay me off shortly thereafter. Or does the larger salary make me more expendable? Should I continue to be as cautious? I guess potentially if things turn south enough, no one should be considered safe. My company is an International company that does business all around the world, so not limited to U.S. market, FWIW.
  • From a psychological perspective I was not expecting to reach this income level until at least another 4 to 6 years, if ever (assuming annual merit increases of 2% to 4%). The extra income has me feeling a little looser with the budget. E.g. can we afford a more expensive house if/when we move, eat more restaurant meals, etc. Wondering how to best manage budget discipline/lifestyle creep (or if I even should).
  • Not sure if this matters but our household is currently cash-flow positive after maxing out all tax advantaged accounts, so this is just icing on the cake. I guess I should just throw this in taxable once I start to receive it? (assuming no hiccups between now and when it takes effect). Other options could be mortgage paydown/529 contributions.
Anyone else ever received a large, unexpected income boost, and how did you handle it?

Congrats! Thankful to be in a similar boat this year.

A checklist for consideration:

- Trust the official explanation (i.e. you’re a highly valued employee that has impressed leadership) and see if you can build on it now, based on this very tangible show of support. This isn’t the time to coast — rather, it’s the time to accelerate efforts, continue making an impact for your company, and gain additional leadership recognition.

- Expanding on this last point — take opportunities to work with broader teams if possible - i.e. not just your line manager and their manager. This board is more skeptical of Megacorps than most and it comes from experience. It’s possible that your boss went to bat for you and got you paid — cross-functional work adds a layer of protection vs. the lay-off reaper.

- Financially, do you max out your ESPP and HSA? Embarrassed to admit I underutilized both vehicles with earlier raises but not now. Our ESPP is a solid plan that effectively enables you to turn automated savings of $8k into $10k every six months. Good way to automatically save your raise and turn your per-check increase into meaningful savings every month.

- Last as many have mentioned - celebrate a bit. Tougher to do this with a pandemic, but you’ve earned a getaway, a great dinner, something your family has wanted for the house - that’s what the cash is there for!
carolinaman
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Re: I was recently given a 14% raise and...

Post by carolinaman »

Many years ago I received my annual merit increase early in the year. Shortly after that, the company froze all merit increases for the rest of the year. Apparently, I was the only person in my group to get an increase. There was a lot of grumbling by my peers for the rest of the year. I kept my mouth shut and avoided those gripe sessions.

Congratulations on your increase. That is especially noteworthy with all that is going on right now.
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BrandonBogle
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Re: I was recently given a 14% raise and...

Post by BrandonBogle »

dcabler wrote: Tue Aug 04, 2020 7:39 am
Grt2bOutdoors wrote: Tue Aug 04, 2020 7:23 am Have you ever been in a position of losing your employment for any period of time since earning your degree? You think a person can’t or won’t be out of work for a period longer than 12 months? There is no one size fits all but unemployment income hardly pays the expenses for most people reading this forum.
+1 on this. I've been between jobs probably 3 times. Twice I already had something lined up when I was notified because I could see the writing on the wall. Once was a surprise and I was out for 10 months. Unemployment basically covered COBRA, but it ran out before my next job. Between unemployment benefits and my EF and some frugality, I was covered for 9 months. At month 9 I had the new gig lined up, but I still had to dip into my investments a little bit to bridge the time to my first paycheck. In my case I would not have called 6 months "conservative" nor would I have called 12 "very conservative". I'd probably call 20 months conservative.

When you're between jobs for long periods, you do need to have a plan beyond just the EF. In my case, by a certain month, I was going to consider relocation and/or a career change. Fortunately, I didn't need to do either.
While I completely agree with both of you, it boils doing to what you have available. Cash sitting in an Ally Savings account, I have 6 months of everything important or 12 months of mortgage payments.

However, when you consider taxable investments too. now we are talking over 83 months (almost 7 years) of the full monthly budget. Then there Roth IRA contributions that can be withdrawn at any time without penalty, giving another 6 years (again, without lifestyle changes). Then there are 401k withdrawals, which do have penalties. All of this also doesn’t consider growth after today.

For reference, I’m in my mid-30s and only broke six figures in the past two years.
dcabler
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Re: I was recently given a 14% raise and...

Post by dcabler »

BrandonBogle wrote: Tue Aug 04, 2020 7:52 am
dcabler wrote: Tue Aug 04, 2020 7:39 am
Grt2bOutdoors wrote: Tue Aug 04, 2020 7:23 am Have you ever been in a position of losing your employment for any period of time since earning your degree? You think a person can’t or won’t be out of work for a period longer than 12 months? There is no one size fits all but unemployment income hardly pays the expenses for most people reading this forum.
+1 on this. I've been between jobs probably 3 times. Twice I already had something lined up when I was notified because I could see the writing on the wall. Once was a surprise and I was out for 10 months. Unemployment basically covered COBRA, but it ran out before my next job. Between unemployment benefits and my EF and some frugality, I was covered for 9 months. At month 9 I had the new gig lined up, but I still had to dip into my investments a little bit to bridge the time to my first paycheck. In my case I would not have called 6 months "conservative" nor would I have called 12 "very conservative". I'd probably call 20 months conservative.

When you're between jobs for long periods, you do need to have a plan beyond just the EF. In my case, by a certain month, I was going to consider relocation and/or a career change. Fortunately, I didn't need to do either.
While I completely agree with both of you, it boils doing to what you have available. Cash sitting in an Ally Savings account, I have 6 months of everything important or 12 months of mortgage payments.

However, when you consider taxable investments too. now we are talking over 83 months (almost 7 years) of the full monthly budget. Then there Roth IRA contributions that can be withdrawn at any time without penalty, giving another 6 years (again, without lifestyle changes). Then there are 401k withdrawals, which do have penalties. All of this also doesn’t consider growth after today.

For reference, I’m in my mid-30s and only broke six figures in the past two years.
Sure. And some of this is a form of mental accounting, in my opinion, especially when it comes to EF's. At this point in my career I don't have anything anywhere specifically designated as an "emergency fund". I certainly have "working capital" (a fancy name for my checking account) and credit cards with a sizeable buffer for everyday life. So if an instantaneous emergency comes along, no issue. Otherwise it's no more than a couple of days to withdraw and have money available to spend.

If I were earlier in my career, however, I'd certainly fill up my emergency fund first before investing anything. Nothing like being out of college and entering the work force just before a down cycle, losing your job, and not even being able to pay your apartment rent. As you continue your progression and your investments begin to grow, there is less of a need for a true designated EF, in my opinion. This has been discussed elsewhere on the forum in the past.

Cheers.
fyre4ce
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Re: I was recently given a 14% raise and...

Post by fyre4ce »

I recently rewrote the Managing a Windfall wiki page:

https://www.bogleheads.org/wiki/Managing_a_windfall

Most of it is overkill for a 14% raise but it'd still be worth a read through to see if any details apply to you.
HootingSloth
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Re: I was recently given a 14% raise and...

Post by HootingSloth »

For what it is worth, I work in an industry and position where most people leave after a few years for a job that pays substantially less. So I have always expected my salary to go down, but it has continued ratcheting up significantly each year for the last decade or so.

Our household income has increased by over 100% during that time frame. We were perfectly happy at the original income level, and prefer to make hay while the sun is shining, so have not really increased our spending. The impact on our savings has been nice and should improve our flexibility down the road. It really depends on what you want, but just upping your savings rate is a very simple and valid option.
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White Coat Investor
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Re: I was recently given a 14% raise and...

Post by White Coat Investor »

Grt2bOutdoors wrote: Tue Aug 04, 2020 7:23 am
White Coat Investor wrote: Mon Aug 03, 2020 12:22 am
justsomeguy2018 wrote: Sun Aug 02, 2020 1:52 pm Apologies for the "humble brag" post, but I learned megacorp is giving me a 14% raise which is set to take effect next month, which will translate to a little under $1k/mo incremental net after taxes. Which surprised me as I know most companies are hoarding cash and furloughing/laying off, so I was not expecting any kind of salary increase and possibly even a layoff, depending on lingering impact of pandemic. My understanding is only a select few employees were given this kind of salary increase (apparently I am believed to be a high quality employee). I am also not sure if maybe my current salary was considered to be under market value, or undervalued to my peers, and they were trying to bring it more in alignment? The official explanation is I am a highly valued employee that's impressed leadership.

Why am I posting this? Well, I guess I just wanted to sound off on what's running through my head from this news.
  • I've been staying pretty conservative with EF (~20 months) over pandemic-related employment concerns - should this help ease those concerns? It would seem silly to value me enough to give me a large raise, but then lay me off shortly thereafter. Or does the larger salary make me more expendable? Should I continue to be as cautious? I guess potentially if things turn south enough, no one should be considered safe. My company is an International company that does business all around the world, so not limited to U.S. market, FWIW.
  • From a psychological perspective I was not expecting to reach this income level until at least another 4 to 6 years, if ever (assuming annual merit increases of 2% to 4%). The extra income has me feeling a little looser with the budget. E.g. can we afford a more expensive house if/when we move, eat more restaurant meals, etc. Wondering how to best manage budget discipline/lifestyle creep (or if I even should).
  • Not sure if this matters but our household is currently cash-flow positive after maxing out all tax advantaged accounts, so this is just icing on the cake. I guess I should just throw this in taxable once I start to receive it? (assuming no hiccups between now and when it takes effect). Other options could be mortgage paydown/529 contributions.
Anyone else ever received a large, unexpected income boost, and how did you handle it?
I would also invest 16 months or so of that emergency fund. 20 months is ridiculously conservative. 12 is very conservative. 6 is conservative.
Have you ever been in a position of losing your employment for any period of time since earning your degree? You think a person can’t or won’t be out of work for a period longer than 12 months? There is no one size fits all but unemployment income hardly pays the expenses for most people reading this forum.
At a certain point, reaching financial independence faster by taking on more risk lowers your overall risk of not having the money for your living expenses than having a larger pot of cash. Where that line is may be different for everyone. But the likelihood of someone smart enough to be on this board not being able to acquire reasonable paid employment within 365 days of starting to look for it seems incredibly low to me. Add in the fact that most people on this board have substantial savings, relatively little debt, and very strong "financial muscle" already, and it becomes even nuttier to have massive emergency funds.

Ask yourself how long could you maintain a reasonable lifestyle if you stopped working all together today. The answer is likely years if not decades and it has probably been that way for a long time already. The fact that some of the money is in retirement accounts and invested in bonds and stocks is irrelevant. In that situation it would cost you very little in taxes and penalties to access it. For a retiree, the entire portfolio is an emergency fund.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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Sandi_k
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Re: I was recently given a 14% raise and...

Post by Sandi_k »

I have had double-digit increases in pay several times in my life; I keep my eye on colleagues and industry pay, and occasionally allow myself to be headhunted to a new position. So congratulations!

However, I agree with a previous poster: the more expensive you are, the more visible you are when layoffs come calling. I have made it a point to never be the *most* well-paid person in my unit. But second-most well paid? Yes.

Our strategies have revolved around increasing our voluntary retirement contributions every time. In the one instance where I got a retroactive lump sum for ~ 6 months of pay (many years ago) we did use the lump sum for a one-time splurge, and bought equipment for our mutual hobby.

Other than that, it's been careful increases in savings, and careful increases in lifestyle. I got a good bump last year, which meant I did upgrade my 10 year old car for a new car, in a hybrid model. So yes, I paid more up front - but now my monthly gas expenses have been cut in half, which means I can bump up retirement savings again. Cash flow matters.

We've used some of the pay increases to do savvy improvements in the house: new double-paned windows (decrease our heating and cooling costs, plus are better sound insulation); a new HVAC system to replace the 30 year old one, so the house is more comfortable.

Thinking about leveraged life improvements that slowly improve your cash flow over time means that our cost of living hasn't increased much since 2011, when we first moved into this house; I've looked back at those budgets from the first couple of years, and have been gratified at how little our monthly expenses have changed. (Although I've finally come to agree that food costs have now stabilized at a higher amount every month). :annoyed
Mudpuppy
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Re: I was recently given a 14% raise and...

Post by Mudpuppy »

White Coat Investor wrote: Fri Aug 07, 2020 8:09 am At a certain point, reaching financial independence faster by taking on more risk lowers your overall risk of not having the money for your living expenses than having a larger pot of cash. Where that line is may be different for everyone. But the likelihood of someone smart enough to be on this board not being able to acquire reasonable paid employment within 365 days of starting to look for it seems incredibly low to me. Add in the fact that most people on this board have substantial savings, relatively little debt, and very strong "financial muscle" already, and it becomes even nuttier to have massive emergency funds.
Not relevant to the OP, but I've noticed we have quite a few university professors on the board. Their hiring cycles are very seasonal (almost everyone who works full-time starts in the fall term) and higher education is also getting hit hard by this economic downturn. If they are laid off at one school, they have a very narrow window of opportunity to be hired full-time at another school, or they'll have to wait a whole year to try again. There is that sector's equivalent of temporary work through adjuncts, and of course they could pivot to the private sector or to consulting, but it is a known segment of the Boglehead population that could face long-term full-time unemployment. The same could be said for people working in a very niche market in the private sector, where there might be relatively few employers.

Back to relevancy to the OP, I agree that doesn't mean the "emergency fund" has to sit around doing nothing. I think we have lost the OP in this thread, but that's why I had asked upthread where the OP had "parked" the emergency fund. I'm really hoping the OP is not like one of my co-workers who had a very large emergency fund sitting in a local credit union savings account earning 0.10%.
iamlucky13
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Re: I was recently given a 14% raise and...

Post by iamlucky13 »

justsomeguy2018 wrote: Sun Aug 02, 2020 2:13 pm
Triple digit golfer wrote: Sun Aug 02, 2020 2:01 pm What are you doing with your "extra money" now? Do more of that.
I have automated quarterly deposits into taxable and 529. Guess I could increase the amount of those deposits to account for the additional income.

What about the EF? Is it less risky to reduce that and invest it, or should I still be cautious given everything that's going on?
* EDIT - sorry, I missed that you had a 20 month emergency fund. I still offer my logic below as one way to choose what to do with your emergency fund, but I don't see a reason that 20x monthly expenses is necessary as a dedicated emergency fund. /EDIT

No, it is not less risky to reduce your emergency fund, because the scope of emergencies you could experience does not decline. If you let your lifestyle creep upward and take on more recurring obligations with your new salary, the scope of potential emergencies could actually increase.

However, you could invest some of it if you account for the added risk.

For example, suppose you had 6 months of living expenses saved, and aren't happy with 1% online savings or CD's. Also suppose you estimate a total bond fund has a credible risk of experiencing a 10% value decline. If you keep 3 months of expenses in cash savings, and 3.3 months worth of savings in bonds, you would expect to be able to cover the same emergency during a down market, but are statistically likely (not guaranteed) to earn more long term than just keeping that 6 months expenses in cash.
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