Increase Your Investing with Your January Pay Raise

by Hank

Members of the military receive an annual pay raise every January.  For the past several years, Servicemembers of the U.S. military have received at least a 3% pay raise per year.   

What do you do with your pay raise?  What do you do with the extra money you earn every two years of service when you earn a raise?  What do you do with your new salary when you get promoted?  For many promotions, the pay raise is quite substantial.  When a captain in the United States Army gets promoted to major around the ten year mark of commissioned service, he or she can expect approximately $650 more per month.  Many of us go on a spending spree and/or go further into debt with our new found money.  I can’t lie, when I was promoted my wife decided that my pay raise was exactly equal to the car payment for the new car she had her eye one. 

 

There is a better use of this new found money.  While we should enjoy a portion of our hard earned promotions and pay raises, we should also increase our retirement investing with the money. 

 

Here is an idea: pay yourself a raise.  Increase your contributions to the federal Thrift Savings Plan (TSP), the governments version of a 401-k, by 1%.  Keep doing this year after year, and you will quickly squirrel away enough money for retirement.  Most financial planners agree that you should save 15% of your gross pay every month for retirement.  So, an E-6 with 9 years in the Army makes approximately $54,750 per year including his or her basic allowance for housing and food subsistence, or about $4,500 a month before taxes.  The E-6 should be setting aside approximately $680 for retirement every month.  Not there yet?  Don’t worry…you will be when you start paying yourself first with portion your annual pay raises.

 

I personally increase my contributions to my TSP account by 1% every January.  My personal goal is to eventually save the $15,500 yearly maximum allowed by the IRS by increasing my contribution one percentage point at a time.  With a 3% raise, 1% is something that you will never miss.  This January’s 3.5% military pay raise will give that same Army Staff Sergeant we talked about earlier an extra $100 in his pocket every month.  That’s free money that he wasn’t really expecting.  Can’t you afford to save that money for retirement?  If you haven’t started saving anything yet, can you afford not to save it? 

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{ 1 comment… read it below or add one }

Jarheadead August 26, 2008 at 8:15 pm

I love this idea. I have only been investing in the TSP for about 4 years and I started at 6%. Every year I have raised that amount by 1%. I haven’t been promoted in the time period but have figured that my next promotion between the BAH raise and pay raise will be apx 8%. When I finally do pin on that second rocker I plan on raising the amount I contribute by 3%. That will still net me an apx pay raise of about 175 a paycheck.

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