Money Hack: Learn How to Save Your Raise and Retire Early

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Pay raises are the fruits of our labour. Often, we view the raise as ‘spare’ money in our budget and allocate it towards improvements in our lifestyle.

However, what if we were to tell you that by allocating all of your raise towards lifestyle upgrades, you’re pushing back the day you can retire? What we’re describing is known as lifestyle ‘creep’. 

In short:

Increased income = increased sense of entitlement = upgraded lifestyle = larger retirement lifestyle required 

If your salary goes up from $50,000 to $60,000 and you maintain a saving rate of 10% of your income, then the amount you save, in absolute terms, would increase from $5,000 to $6,000. The issue with this is that it doesn’t account for "lifestyle creep".

Mo’ Money, Mo’ Problems… ?

You can avoid lifestyle creep and retire earlier if you save your raise or even half your raise. 

The Save Your Raise Strategy

We know that saving the entirety of your raise may be daunting, so alternatively, you can also save half your raise. 

By spending half of your raise and putting the other half towards retirement, you are gradually increasing your standard of living whilst also committing to accelerating the growth of your long-term savings and the option of early retirement.

And as for those who are currently not great at saving, holding back from spending a single cent of a well-deserved bonus can be extremely difficult. As such, permitting yourself to spend half of every future raise, it becomes easier to make the long-term saving commitment of saving half of every future raise.

Example

So, let’s demonstrate just how advantageous it can be to spend (and save) half of your raises, using two individuals where the below is applicable to both:

Person A

• Saves 20% of annual income

• Can retire at 58 years old 

Person B 

• Starting at the same % of income

• Spends (and saves) 50% of all raises

• Can retire at 49 years old

• Can retire 9 years earlier than the conventional saver

The Savings as a Percentage of Pay

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