Why tripling my salary won’t improve our lifestyle

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Woah, that’s a hard sentence for a PF blogger to get out! As someone who may be in this position next year, I am obviously HUGELY looking forward to the extra funds next year. I know that when I first ran the numbers of my full-time income, I imagined our lives changing – we’d have better clothes, have more fun, be better looking 😉 etc. But to be honest, I’ve run the numbers properly over the past few days and the truth is, the extra money is not going to make a big difference to our lifestyle. However, I’m not being a sad sack. I do know it is going to improve our future in a big way.

So to explain, my casual income will be replaced with a full-time salary. The first few things to consider, though relatively minor, is the difference in tax rate and the start of student loan repayments. My tax rate will change from 15% to 30%, and I will start losing about $50 a week to the government to repay my non-interest-bearing student debt. So that takes a small chunk of the expected extra money. Not earth-shattering stuff though.

The second thing to consider is that I/we have a lot of ground to make up. We don’t own a house, and I don’t have any investments (apart from a small amount held for my son). Happily, soon we won’t have any personal debt either!

We are likely to stay living with my FIL for another year or so, simply because he won’t cope without us, and it makes good financial sense for us to stay. So I can’t say that moving, renting or mortgage costs are going to adversely affect our financial situation.

Instead, my definition of security has changed a lot. Before, I felt like it was as *simple* (ha!) as paying off my debt and saving for a home.  Now, as I approach paying off my consumer debt (about $9000 to go) by the end of August, I realise not only will I need a much larger home deposit than I thought, but I will also need a signficant emergency fund put aside before I will feel confident enough to borrow a chunk of money for the mortgage. In Australia, interest rates are closing in on 9% – we have had 11 interest rate rises in a row. So now, before we buy, I feel we will need to save at least $15,000 into an EF, and in a perfect world, save at least $25,000 for a deposit.

Clearly, that would be hard if we did start renting. And it is such a lot of money, that I can see our new more frugal existence is going to continue, double incomes or not. I hadn’t probably realised that either when I first started paying down debt.

Furthermore, our interest in finances has led us to realise our goals are wider than just buying a home. We will also start contributing extra to my husband’s super (as of this week) and we aim to start investing small amounts each month in a managed fund as of 2009. Meanwhile, we’ve also realised we should be paying to have our wills sorted out and when I start work I will need to get life insurance. All this financial responsiblity costs money on a week-to-week basis.

This adds up to a lot of things to save/pay for over the next few years. And this means we already have a lot of plans for our extra income. We are going to slightly increase our entertainment budget, but it will only be a small percentage rise.

Don’t get me wrong, I’m not complaining. I’m glad I’ve finally learned a bit more about the wider financial world. It just seems like every time I look around, there’s another aspect of our financial health that we should be taking better care of. Don’t worry, we WILL take control 🙂 !

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1 Comment »

  1. tehnyit said

    This reminds me of when I switched from a student income to a full time income. I thought I struck it rich I did the sums and realised that my spending power still about the same when I added in the new tax bracket I am in, and saving up for a house etc.

    Btw, I just stumbled across your blog and it has many good articles. keep up the good work!

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