I Started Saving My Raises Every Year, and Here's What Happened

by Maurie Backman | Updated July 17, 2021 - First published on April 19, 2020

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It's a move that benefitted me in more ways than one.

It's a move that benefitted me in more ways than one.

These days, I'm a freelance writer with a variable income, so I can give myself a raise whenever I want by taking on more work. Back when I was salaried, that option didn't exist. If I wanted a raise, I had to wait until I got promoted, or until annual increases came up. 

Thankfully, I did manage to get a raise most years I worked as a salaried employee. The first year I got one, I took the opportunity to just enjoy that extra money. I used it to travel, spend more on leisure, and enjoy some conveniences like takeout meals. The second year I got a raise, I decided to rent a more expensive apartment -- one I didn't have to share with anyone. 

But fairly early in my career, I got into the habit of saving raises rather than spending them. It changed some things in very good ways. 

A nice bump to my retirement account

Once I decided to save my annual raise rather than spend it, I earmarked the money for retirement savings. The reason? I had a good six months' worth of living expenses socked away in a regular savings account, so I was set for emergencies. But my long-term savings needed work, so I signed up to send my entire raise into my 401(k). The extra money got deducted from my paychecks every two weeks automatically, and because I never got used to having the extra dollars on hand, I didn't miss it. 

Appreciating the lifestyle I already had

I spent my first two raises on improving my lifestyle. But once I got into the habit of saving them instead, it helped me realize I didn't need more money to enjoy life. I learned to be happy with what I had, and to make the most of my earnings. 

One year, I was tempted to not save my raise, and instead put it toward a few trips. I realized I could pull off those trips for less if I was willing to rough it a bit and compromise on a few details. I also thought about getting an even nicer apartment, but I realized I already had a decent amount of space. What would a little more square footage really do for me? Not enough to get it with my hard-earned raise. 

When I committed to saving my raises, I realized there was no real need to spend them. That little epiphany has helped me stay on course and keep the extra money I earn flowing into savings. 

Make the most of your pay boosts

For me, financial security has proven more beneficial than extra space or a nicer hotel room during my travels. Not only that, but learning not to anticipate more spendable income has helped me make good use of my money, and see a pay increase as something that's really nice, but not absolutely necessary to stay afloat. 

It's hard to carve out money for savings, but if you get into the habit of banking your raises, you can boost near-term cash reserves and/or increase your IRA or 401(k) balance. That may mean you don't get to enjoy some indulgences, but it's powerful to have the financial security so many people crave, yet can't attain.

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