Hurray!...a Salary Increment!

Most people are in cloud nine when they are given a salary raise. Oh wait, most people? Why not all people?

Some  Most people I know are unhappy with their increment in salary. Are these people truly worthy of a higher increment? I will leave this 'sensitive' discussion debate for another day.

Let's talk about what happen when there is a jump in salary. What do most people do with their new salary increment?

Let's say Joe's monthly salary is $2500 and he has just been given a raise of $125. A typical 5% increase in salary. Joe is both happy and overjoyed.

And so he decided to stepped up his lifestyle:

• get his monthly haircut at a more 'premium' saloon which is $40 instead of the usual $20
• more restaurant meals and clubbing with girlfriend - monthly expenses goes up from $500 to $700 a month
• signed up gym membership for $80 a month

From the look of it, most people, including Joe, do not really think there is anything wrong with this little increment in expenses since he has just been giving a raise in salary.

Well, let's do an analysis of his increment in salary vs his 'minor' monthly expenses.

- His increment in salary: $125 (up 5%)

- His new monthly expenses after salary increment - $300 (up 12%)

• $20 (haircut)
• $200 (restaurant meals + clubbing) + 
• $80 (gym membership)

There was a 5% increase in salary and that causes Joe to up his seemingly little increment in lifestyle expenses by 12%.

Let's assume Joe used to save $300 a month before the salary increment. After the rise in salary ($125) and his new increase in expenses ($300), he can now only save $125 (58% lesser in saving).

Most people, myself included, have not really looked long and hard into our monthly expenses and it remains a myth to me why people always tend to spend way more than they used to after a salary increment.

A raise in salary may not be a raise after all if we end up saving less each month