Stanley Johnson (4 of 5)

Salary Shenanigans
I've gotten a raise every December since I started working my current job 4 years ago. The sad part is, I cannot tell you anything specific about what I did with the extra money that made it into our bank account after each pay increase. Evidently, every time my pay was adjusted, our lifestyles adjusted too. And if the pay increase was $50,
then we suddenly needed exactly $50 more each month in order to survive. I think that was just the universe's way of keeping everything in equilibrium. Of course I'm being sarcastic, but the point is still the same: Where is that extra money and if we were doing okay before the pay raise, then why can't I account for the additional money?

The problem is, here is the average person's response to getting a salary increase: first we buy new stuff before we even get the raise, just based on the anticipation of making more money. Then once we actually get it, we catch amnesia concerning our previous purchases and buy more stuff as if we are getting the entire annual raise all at once. This behaviour totally ignores the fact that a $2000 annual raise means that we might get another $60 per check after taxes. With that in mind, maybe we should hold off on the new living room furniture and wardrobe upgrade (ya think?). Finally, even though we were doing just fine before the raise, in due time the "new money" just gets absorbed into our cost of living and miraculously makes no positive impact on our financial situation, let alone our debt-to-income ratio.

[Sidenote... most people tend to do the same thing with tax returns, don't they?!]

So to combat this, my thinking now is to be deliberate with this new cashflow and treat it like what it is: money that we were able to live without prior to the salary increase. In other words, don't adjust your spending to match your income (subconsciously or otherwise) but instead adjust your thinking and pinpoint specific ways to use that money to reach your financial goals.

In our case, effective 12/16/07 I will receive my annual salary increase which this year amounts to an additional $82 per paycheck, or $164 a month. This means we can pay off $150 more of our student loan debt every month and still miraculously have $14 more than we would've had previously. $14... whoo hooo! Okay, that's not exactly a king's ransom. But think of it as finding $14 on the ground every month. It's still 1400 cents that you would not have had otherwise.

The key is to make that change right away, not even giving yourself a chance to miss the $150... because you can't miss what you never had. Conversely, try just absorbing the extra money into your usual cash flow and then attempting to take it back out 6 months later. You'll feel the effect big time because by then all of your spending habits will have shifted to account for the increase, and the $164 will now be part of your requirement to survive. You will suddenly neeeeeed that money, in essence making you worse off than you were before the raise. And so needless to say, the call has already been made. Effective January 1, our student loan payment has been increased from $200 to $350 per month. Why in the world didn't we do this 3 years ago?


Rabbit Ears
V and I have mulled over cancelling our cable for almost a year now... and just to show that you never know from where inspiration will spring... after all of our waffling, it was Miranda's blog comment on "Stanley Johnson pt. 2" that finally pushed us over the edge. And so as of today, V and I no longer have cable television. We also combed over our telephone bill and found a way to cut that down by $5.95 per month (services like call forwarding and call waiting all got the axe). Combine that with the $46.67 savings in cable, and we're looking at about $52 per month or $630 per year in savings. Those are not earth-shattering amounts, but they present the another good example of being deliberate with your money.

Without a plan, that $52 would be just like the "extra money" I talked about with the salary increase. It would be absorbed into our cost of living, and in the long term would make no positive impact on our finances. So again, the challenge was to not only make the sacrifice in the first place, but to be calculated with how we redirect the savings. V and I decided to do something a little different with this one. Even though we are not big television watchers, just redirecting the $52 to a bill still did not seem like enough to justify the extent of the sacrifice involved. With something tangible like television, we decided that it would be best to try to find something to replace it that was also tangible and hopefully more rewarding, too. So here is what we came up with:

The first month's savings will go towards buying two good antennas for the two televisions that we have since (contrary to popular belief) no cable does not mean no television. In fact, we checked the line-up at tvguide.com and were both surprised by how many channels a decent antenna can still pick up. Once that is done, here's how we plan to redirect the rest of this pocket change.

The $52 will be split in half each month. $26 will go towards the student loans, bringing that total payment up to $376 per month. With the other $26, we are going to borrow a page from Dave Ramsey's book and set up an envelope system. Each month we will now have $26 earmarked for Justin Alexander's DVD and book collection. It doesn't sound like a lot, but truth be told, we haven't bought any books or DVD's for him since before he was born. Having an envelope set aside for his educational purchases will allow us to not only budget for it, but will also force us to be more deliberate with making periodic purchases and building his library. Even at two books and a DVD per month, by the end of each year the addition to his library should be both noticeable and impressive, not to mention more rewarding than yet another episode of Law and Order (oh how I'll miss you, Detective Benson).

__________________

The bible says "let love be the only thing that you owe another man" (Romans 13:8). That, and (I'll add) perhaps some accountability. So with that I leave you with the same question that I've hopefully provoked over and over by now: What are you doing to change your financial situation?