Most consumers insist that after paying the bills, there’s normally a few cash left over to increase your investments and savings. In most instances, it could be the truth. It may be hard to find money to put aside for rainy days if you have groceries to purchase and some pressing expenses. But, there’s one way that could boost your ability to save and that is through increasing your savings by your raises, you can easily build up your own nest egg without even noticing any changes in your spending habits or lifestyle.
How to Raise May Result in Larger Savings Account
Bonuses and raises, instead of being seen as an excuse for indulging lifestyle inflation must be seen as opportunities to increase your savings. It includes your retirement savings that are in the form of a tax-advantaged retirement account. Anytime you get a raise, devote a certain percentage of this to your savings. Through this, you do not need to cut spending. You will not see a change in your lifestyle, yet you’ll see a positive impact on your savings.
Putting a part of your raise in your tax-advantaged account for retirement is one of the best strategies you can do. Since raise is taxed at the marginal tax rate, the most ideal use of raise is contributing to your RRSP so you definitely get to invest or save every dollar of your raise. For instance, if you are making $40000 annually and you get a three percent raise every year, during your first year, you will have extra $100 monthly that could go to your funds within RSSP. If you save every excess hundred dollars, you will be able to increase your savings.
You do not even have to put your raise aside. Once you get a raise and put 3 quarters of that into TFSA or RRSP, you might increase your savings a bit and you would not have to change your lifestyle just to make it work.
Get Rid of Lifestyle Inflation
The real key to boost your savings by using your raise is by avoiding lifestyle inflation. Once you boost your spending and expenses regularly with every raise that you get, it is impossible to save a lot. But, rather than spending more, channel extra to your savings. Ask yourself if you want to add more expenses. Does it make sense to tie yourself down with numerous obligations just because you are making more money? Or would you like to keep your current lifestyle while making more secure future?
It does not mean that you cannot have a bit fun or do something good once you get a raise. This makes sense to utilize some of these today. However, your perfect bet will be making fun spending temporary as well as committing to the savings for a long term. Just be wise with each of the decisions you make since it is about your financial and your future depends on it.