Getting a pay increase? Here’s how to make that money go the extra mile.
Whether it’s a result of contract negotiations or moving up the pay grid, it’s always great to know when a salary bump is on the way.
But have you thought about what you’re going to do with those extra funds?
Although the idea of having greater financial leeway can make it tempting to start spending a little more loosely (as in before that increase even reaches your bank account), we recommend adopting a bit of a ‘cooling-off’ period. Basically what that means is continuing along with your existing budget—at least until you get a better sense as to just how much that pay boost will impact your overall financial situation.
To figure that out, here are 4 key ways to help you make that pay increase go the extra mile:
1: Determine exactly how much more you’ll be bringing in (after taxes, pension contributions, etc.)
Will that bump in pay be enough to have a noticeable impact on your monthly budget? Perhaps. However, there’s only one way to find out—and that’s by doing the math.
And remember, even the smallest amount can add up over time.
For example, a net increase of $50 per pay might not seem like a lot, but when you multiply that amount over the course of a year, it works out to an extra $1,300 in your pocket (if you’re getting paid bi-weekly).
Where would that $1,300 (or more) be better served? Spending it every two weeks on things you don’t really need? Or putting it towards the financial goals you’ve been putting off?
One choice provides you with instant gratification, while the other favours more of a long-term ‘gain plan’.
Either way, by taking the time to figure out the full extent of your pay increase, you’ll then have the much-needed perspective to decide a financial course of action that’s best for you.
2: Set goals for that extra money
While having perspective into how much your pay increase will impact your finances is a good start, setting concrete goals will help you to give that money a proactive sense of direction.
Tips for setting goals:
- They should be specific (i.e. paying down debt, saving up for a down payment on a home or for your child’s post-secondary education, etc.)
- Review and then prioritize goals by importance (which ones are the ‘must haves’ versus the ‘nice to haves’, just in case your increase doesn’t afford the ability to save for them all)
- Set a timeline in which you want to achieve your goal(s)
Here’s how to put your financial plan into motion
Plus, here are some key educator-specific savings goals to start planning for:
- Next summer: If cash flow (or lack thereof) has been the constant obstacle to achieving your ideal summer vacation goals, saving your pay increase between now and next July could help change that
- Pension buyback: If you’re returning from any type of leave in the fall, you may want to consider putting that pay bump towards ‘buying back’ pension credits to ensure you retire with your maximum pension benefit
3: Create a budget (and stick to it)
Once your goals are established, the next step is putting together a budget to determine how much of that pay increase (plus any additional funds you can afford to contribute) will be divvied up to help achieve those goals.
As an education member, you have a few advantages when it comes to developing your budget:
Pay grid: Having a sense of your earning potential over the course of your career enables you to project when you’ll (possibly) be able to allocate more money towards each of your goals.
Pension plan: Having this in place means you’ll be able to gauge retirement income—beneficial in determining whether you’ll eventually have a pension income gap (so you can then work backwards to figure out how much more you’ll need to save to fill that gap by the time you reach your 85/90 factor).
Tips for developing your post ‘pay bump’ budget:
- Get a handle of your cash flow: Mark down the amount of money coming in and what’s going out. Whether you jot the numbers down manually or use our online tool, a budget won’t work until you get the full 360-degree view of your financial situation.
- Trim unnecessary expenses: Once you have a list of your monthly expenses, divide it into three categories—‘necessities’ (i.e. food, gas, mortgage/rent, utilities, etc.); ‘debt payments’ (loans, credit cards); and ‘luxuries’ (coffee, eating out, online gaming/shopping, entertainment, etc.), then see which areas you can scale back on, or cut out altogether.
- Allocate a portion of your budget to building an emergency fund: After all, life always seems to have a way of throwing a curve ball when you least expect it and saving money for the unexpected will ensure you have the funds to deal with an emergency (should one arise)—without having to rack up credit card debt, take out a loan, or take away money from other savings goals.
How to build a budget that works
4: Maximize your budget by leveraging government incentives (whenever possible)
From buying a home to saving for your child’s post-secondary education, some big-ticket goals are made a little easier to achieve thanks to a few government perks.
Goal: Down payment for a home
Incentives: Home Buyer’s Plan and/or First Home Savings Account
Home Buyer’s Plan:
This incentive enables first-time homebuyers to withdraw up to $60,000 from their Registered Retirement Savings Plan (RRSP) to use for a down payment. If you have a partner or a spouse, they can also withdraw from their RRSP for a total of $120,000 to put towards a down payment. If the amount withdrawn is paid back within 15 years, taxes will continue to be deferred into retirement.
First Home Savings Account:
Whereas the Home Buyer’s Plan enables you to leverage existing funds from your RRSP to put towards a down payment on your first home, the FHSA is a registered account designed with the sole purpose of helping you to save money to do just that. With an FHSA, you can contribute up to $8,000 per year—to a plan maximum of $40,000 (contributions are tax-deductible, similar to an RRSP). And the best part is, qualifying withdrawals are tax-free, just like a TFSA. Plus, those withdrawals don’t have to be paid back (unlike funds withdrawn through the Home Buyer’s Plan).
Goal: Paying for your child’s post-secondary education
Incentive: Canada Education Savings Grant (CESG)
This incentive works in tandem with your Registered Education Savings Plan (RESP), where you’ll receive an additional 20% of your RESP contributions. This equals up to $500 annually, up to a lifetime maximum of $7,200 per child.
Goal: Emergency fund, summer cash flow fund (or other short/long-term goals)
Incentive: Tax-Free Savings Account (TFSA)
With varying annual contribution limits since its inception, this investment option enables you to save for future goals and then withdraw that money down the road, tax-free.
Tip: Whether you’re looking to put your pay increase towards a TFSA, FHSA, RRSP or RESP—setting up pre-authorized contributions offers you the ability to select both the contribution amount and frequency (weekly, bi-weekly, monthly) that you’re comfortable with.
Need advice on how to make your pay increase go the extra mile? We’re here for you.
From the pay grid to your pension plan, our genuine understanding of your world enables us to help you maximize every dollar (and salary boost) you earn, at every stage in your career. It’s the kind of educator-specific insight reserved exclusively for you and your family members.
