Suddenly the pressure is off— what next?
Someone raised this on the facebook group: if the loans are repaid, you get a raise, or your income rises, how do you make sure you dont fritter the extra dollars?
My income nearly doubles this month. From very very tight to comfortable. I am a fritterer. So im looking for ideas / experience from others to help manage it.
So far, I've rearranged my budget. Putting all the categories that have been limping along into a group at the top of my budget:
maintenance (fridge breaks down?); vehicle maintenance; health/dental provision; ebike maintenance; new battery for the ebike; gifts; funeral (eek; i’m over the hill now).
I've upped some goals.
I’m thinking to bring up my reserves to a better level, then set a regular monthly contribution to keep them there .
How have you managed this kind of change?
Your budget is at least as important as it was before, maybe more. You have identified a critical danger zone but the steps you identify are exactly how you should be thinking about it. priorities, priorities, priorities. Category balances driving spending now become critical. If you haven't put money in a category because you had other priorities do not move it just because you know you have it elsewhere in your budget. (at least with out a clear decision that priorities have changed) Superbone has great specific ideas.
Double the categories where you'll feel it. There are lots of categories where twice the income will not mean twice the outgo--that's where your new savings comes from. But if you double some categories, you'll feel the effects of the raise while reinforcing your good habits elsewhere. When I jumped in pay by almost double, I doubled my eating out, fun money, and shopping categories. I didn't need more groceries now that I had more money, and I didn't need to budget more for car repairs, etc. etc. So there was still a lot to budget for saving and giving. Doubling dining out, though, made me feel soooo rich without causing all my new money to go down a drain.
I got a pay raise mid-2020 which finally give my budget some much needed breathing room, and I was also worried about the frittering/lifestyle-creep with all my "extra" cash!
A holding category you might consider adding is Cost of Living Adjustments, since prices for things like food, fuel, utilities, rent (if applicable), will always rise year-over-year. I just implemented this in my budget beginning this month (May). Although I don't know exactly how much those things will increase, I think a pretty standard assumption is 3-5% per year, but obviously can spike higher (like in a pandemic!).
This will give me a temporary buffer category to hold some extra funds that won't get spent elsewhere. And if I need to dip into it, I can then transfer the required amount to the specific category, like fuel, groceries, whatever. Once the year is over, I can review my expense averages for 2021 and make adjustments going forward into 2022 for those categories - lather, rinse, repeat - or this is how I envision it working anyhow!
This COLA is in addition to my Monthly, True Expense, and Discretionary/Fun categories and Savings buckets that are already getting funded monthly.
So, if you already have an idea of what your typical "Needs" are per month, maybe use 3-5% increase off that number to hold for COLA... ?