Live On Last Years Salary

6 05 2008

My wife and I have essentially been living as if we were making mortgage payments on our new house for the last 6 months, but instead of paying a mortgage (and taxes and insurance and Homeowners Association) it’s all been going into savings for our down payment.

We admit that we are stretching ourselves to buy our first house (I think that’s something that most people do), but as we are re-evaluating our budget (less than a month until we move in!) we have found ourselves looking forward to our raises in the fall (even if it just equates to a cost of living raise) because let’s face it…as much as budgeting is important, no one likes sticking to a strict budget, so we look towards the future at what we will be making and what we can spend (or save) at that point in time

I think our problem is that we are always looking to acquire more. We want more and don’t want to make sacrifices to get more.

As Mary and I caught ourselves looking forward at what we will be earning and what will increase in our budget I thought to myself, why not look backwards?

Why not live on last years salary? Say your salary was X last year and it increased to Y this year. If you live on last years salary and budget you inadvertently save Y-X all year. Then when your salary increases to Z you can live on Y and save Z-Y.

This concept allows you to save more and forces you to permanently (ideally) live below your means. It’s simple, but a great and easy way to save!

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2 responses

7 05 2008
Philip

Umm… what happens to Y-X during the year before you spend it, a budget should be putting it into something, which could be savings, but still in the budget somewhere.

It sounds more like just taking a pay raise and putting it entirely into some sort of savings account, just plan it somewhere and make sure to use it effectively

7 05 2008
danielb

Good point. The obvious is what I did not include in the post… put Y-X into savings/retirement. And the best way to do it is to have it automatically taken out each month so your takehome pay remains the same.

I guess I didn’t do a very good job of explaining it, but you got it… Essentially the concept is to live one raise behind.

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