How to beat lifestyle inflation (and boost savings)
Posted
Aug 11 2008, 08:23 PM
by
Karen Datko
Rating:
What do you have to show for your last few pay raises (assuming you've been getting some)? Not sure, eh?
Todd at Harvesting Dollars has a plan for getting real value from those raises while amassing retirement savings and preventing the insidious, invisible creep of lifestyle inflation. He calls it the Save Your Raise finance game.
Simply have all of the money your 2% or 3% raise represents automatically deposited into a retirement account, and adjust accordingly each time your pay goes up. Todd plans to do it for an impressive 10 years. Even if you follow this plan for only five years, you'll have $8,000 before taxes to save every year after that if you start this project with a $50,000 salary.
Now, we can hear those who are saying, "The rising cost of food, gas, etc., is eating up every penny of my raise." We refer you to another finance game created by Todd called Inflation Iron-Man.
It appears that Todd's plan is based on the following assumptions:
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You are content with your level of spending when you begin his plan and are willing to embrace some frugalities.
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You have an emergency fund in place.
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You also have other savings that you regularly contribute to. This could include an account for a new-to-you car and other money to cover rising costs that have an impact on your life.
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You truly believe it's essential to pay yourself first. Nobody wants to retire with only Social Security for income.
Todd writes, "And after the 10 years is up, we could continue to increase our lifestyle by any raises, promotions and bonuses I receive because our retirement savings plan will be in place."
