Adjusting to an Increase in Income
We recently received some good news from my husband’s employer. Starting this month, he’ll be getting a raise of a few hundred dollars per month. Of course, whenever we experience a change in income or expenses, we sit down and create plan for the change. We have clear financial goals that we both want to reach, but we don’t always have the same ideas on how best to accomplish them.
I’d be willing to bet that many other couples out there are dealing with similar issues. Thus, I wanted to share some tips that we’ve found useful in hopes that they’ll help your family thrive.
Examine your short-term and long-term goals
Earlier in the year, my husband and I discussed some goals that we had in mind for 2011. Here they are:
*Build our car replacement fund. Our goal is to save another $5,000 in a dedicated savings account.
*Bump up our emergency savings to a full six months. With a baby on the way, we decided we would feel more comfortable with getting more money into our savings account.
*Pay down our student loan debt. This is our last non-mortgage debt, and it’s decent amount of money. What I dislike the most about this debt is how slowly it’s going down. For every $150 or so we pay each month, the principal only declines by $45-$60.
We also have some smaller financial goals, but these are the big ones.
Allocate new money to what’s most important
If you’re lucky enough to get a raise, or otherwise come into money, it can be hard to decide which of your goals is most important. This is especially true if your partner has other ideas.
This is exactly the situation we faced, as we both had our own ideas as to we could best allocate my husband’s raise. I’d love to pay down that student loan, whereas my husband was more concerned about getting our savings built up before the baby arrives in July.
So how do you decide what to do when you don’t see eye to eye? For us, we’ve found the following tips helpful:
*Sit down and talk. Listen to each other’s motives on what to do with the money. It’s extremely easy to find fault with a goal, but hearing and understanding why your partner wants to do something can be very productive.
*Run the numbers. When we’ve discussed financial issues in the past, we’ve often found ourselves getting into the emotional and psychological side of things. When this happens, it helps to put some objective numbers down on paper (or in a spreadsheet) to keep your thoughts on course.
*Be willing to compromise. If we can’t agree to do one thing or another, then we try to find some sort of mix that addresses both of our concerns.
In this specific case, I realized that wanting to pay down the student loans faster was more of an emotional decision than a financially sound one. If we’re able to go ahead and reach our savings goals earlier, it’ll give us a cushion and allow us to start aggressively tackling our other goals.
We’re expecting a tax refund, and a good portion of that will go towards paying down the student loan. In the end, we’re hoping to meet all of our goals by the end of the year (if not sooner).
Consider having some fun money
I know many people who are so intense about their finances that they simply won’t deviate from their plan. While that works for some people, my husband and I just aren’t like that. While he’s definitely more disciplined than I am, even he wants to have some fun money.
Given the above, it wasn’t hard for me to understand his desire to also increase his “splurge account” account a bit. With everything that he’s put into building our family’s finances, I completely understand where he’s coming from. So while the majority of his raise will go towards fulfilling our joint financial goals, he’s setting aside a bit to have some fun.
I think it’s healthy for couples to allow themselves to enjoy their hard work. When I have a good month, I review it with him and put a little on the side for myself. It’s about being honest and open with each other, so one doesn’t feel like they have to hide a little stash from the other spouse.
Your thoughts on handling raises
Every family handles their finances differently, so I’d love to hear your take on this topic. How have you dealt with increases in your family’s income in the past? Did you modify your budget and direct the additional money toward your goals? If so, what specific things did you target? Your emergency fund? Retirement savings? College savings? Or did you do something fun, like start a vacation fund?
The original article can be found at FiveCentNickel.com:"Adjusting to an Increase in Income"