What Did I Do With My Raise in 2013?

Pay raises are announced on January 1 of each new year in the company I work for… assuming there are pay raises I guess.

This was my first January with my new employer and I had a good idea what to expect as far as raises go. I got exactly what I expected and while it isn’t amazing I’d say it is a fairly typical raise for 2013.

My raise ended up being in the low single digits in terms of a percentage. This is typical for my industry given the current state of the economy.

Unfortunately, this year a couple percent raise doesn’t end up translating into much with everything else that is going on.

There were a some twists this year which I’ll go into more detail below. The real question is did I do what I said I’d do with my raises given these twists? I’ll cover that after I explain the twists.

My Take Home Pay Is Going Down in 2013 Despite My Raise

If you don’t know what I’m talking about make sure you read this post that explains why your paycheck may be smaller and should help you to understand your 2013 paycheck. Essentially, a two percent tax break expired at the end of 2012 which now means a two percent tax hike in 2013 for me.

That isn’t the only hit my paycheck took in 2013. I was lucky and did receive a raise but with the raise comes the pleasure of paying federal income tax on the additional money. This additional raise money is taxed at my marginal tax rate which is a lot higher than my real or average tax rate.

There was one more change that affected my paycheck in 2013. My health insurance costs were increased in 2013 by a couple dollars a paycheck.

It isn’t a big difference, but combined with the payroll tax break expiration and the extra federal taxes I have to pay on my raise, I ended up with a smaller paycheck in 2013 than in 2012.

So What Do I Mean “What Did I Do With My Raise”?

Now that you realize my take home pay actually decreased in 2013 you may be thinking “What do you mean “what did you do with your raise in 2013″? You didn’t get one!!!” 

That is one way to look at it but in reality I will make more money in 2013 than I did in 2012, I’ll just be seeing less of it. Just because it isn’t take home pay doesn’t mean I’ll make less in 2013.

You never know what is going to happen with taxes in the future so it is possible this could happen again. I figured I need to be prepared and instead of just pretending like I didn’t get a raise I used my raise exactly as I planned I would.

I Saved Half of My Raise For Retirement

Yup! Despite a decrease in my paycheck BEFORE adding even more to my retirement savings I did it anyway. Retirement isn’t getting any cheaper just because taxes go up so I need to continue saving for retirement according to my plans.

As you may recall, I plan to save half of every raise for retirement. This is the first year since I’ve made the declaration and I wanted to make sure I started out strong! I wasn’t going to let a smaller paycheck get in my way.

In fact, I increased my contributions to my Roth retirement accounts which means I don’t even get a tax break (right now) on my higher retirement savings rate.

This means that I’ll have to cut back in other areas of my budget. I have a couple ideas of where I’ll cut back but I need to get my first paycheck before I make a final decision. I had a little extra wiggle room built in to a couple budget categories that I’ll likely reduce.

Make sure you’re aware of the new and higher 2013 retirement plan contribution limits if you plan to increase your retirement contributions in 2013.

Did you get a raise this year? What are your plans for it? Did your paycheck get smaller despite getting a raise like mine did? Let me know what is going on with your paycheck (and retirement savings rate) in 2013 in the comments below!

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About Lance Cothern

Lance Cothern, a Certified Public Accountant (CPA) licensed in the Commonwealth of Virginia, is the founder of Money Manifesto. You can read more about him here or connect with him on Facebook, Twitter, Google+ or Pinterest.


  1. Between Obama’s tax increases on the middle class and health insurance premiums going up, we also won’t see our “raises” have any effect on our take-home pay. I believe my wife lost $60/paycheck with the two changes (taxes and insurance) so hopefully her pay raise will help offset that.

  2. My wife and I were just speaking about this issue last night. At my previous employer we got terribly low raises, if we got one at all. So, it could have resulted in a decrease. I typically tried to sock away half of any raise in the 401k though, regardless of what I received. I think this all creates an issue where families have to be more creative about their budgeting and watching their expenses.

  3. Whoo hoo! I can save more money into tax deferred accounts in 2013. It’s like a party for us savings nerds. Glad to see you were able to save half the raise.

  4. It has been along time since I got a raise, but I used to save half of it. I did the same thing with my children, any money they received they had to save half of it. A lesson they remember as adults.

  5. I have no idea what my raise will be or if I’ll even be receiving one…another month to go before the company lets us know. In the meantime, all of my paychecks have gone down (FT, PT, etc.)…

  6. Good for you Lance! I don’t know why more people don’t do this as well. I’ve got a bonus check coming up that may or may not throw off my 401k contribution rate and effectively lower my net take-home. But like you, it’s all good. The money goes towards things I want it to.

  7. Raise? Wot’s that? Over here much the same is happening. While the banks are too big to fail so are bailed out by the government, the people are now having to bail out the government.

    It’s all down to the careless way the banks – and regulators – have been playing with fire. But the authors of this have not paid for it – just walked away with millions.

    While the governments, with the power to pass laws, sit in their hands worldwide and let them get away with it.

    Something wrong somewhere.

  8. Congratulations on your raise. Where I work, nobody got a raise.. with the payroll tax cut and medical costs going up, I actually got a pay cut. It’s very sad but it’s the times we live in I guess.

  9. I hope to get a raise (not sure yet, reviews are in Feb for us), but it’s probably some meager amount. It’s okay, though, because it motivates me to keep developing my skills and look for the next opportunity.

  10. We get our end of the year “rating” in January (which I did quite nicely with), which feeds into salary plan in June/July. So, I won’t know for a few months whether a raise is in the cards for me this year. Last year was the first year in my entire career that I didn’t get a raise…..I feel very fortunate that it was the only such year, but it was still a tough pill to swallow given how everything keeps getting more expensive – AND the fact that the company I work for had a kick ass year. Hopefully this year will be different!

    Kudos to you for increasing your savings even though your take home pay actually decreased – I hope I can say the same come July!

  11. My company doesn’t do performance raises (only promotions and pay bumps with a certain number of years in each position-really dumb if you ask me-nothing more demotivating than knowing that you won’t get a raise no matter how hard you work). My paycheck when down about $50 due to the tax increase, but I did get a phone stipend since I’m now on call 24-7, so I basically broke even.

  12. Raises haven’t yet been determined for me, which means that for now, there is a reduction in take home pay due to the 2% payroll tax hike. Or, better put, that tax getting back to prior levels.

    It is what it is, and just speaks to the notion that we shouldn’t let up when it comes to trying to focus on saving and investing. Do our best at all times, that’s the goal!

  13. We typically get “cost of living” wage increases, but they don’t result in much. Luckily for us, I was able to change my tax withholdings due to our son being born. Unfortunately, our soon to be daycare called to tell us that they are raising the rate this year, so we will pretty much see nothing. I don’t blame anyone, but just have to start thinking outside the box.

  14. It’s been several years since I got a raise. It was right around the time that I committed to putting half of every raise into increasing retirement contributions. So, I’ve been anxiously awaiting the ability to put that into play for a long time now!

  15. This is a great post! So many people don’t actually know how an increase can impact them by way of tax rates. In some cases moving into that next tax bracket (which sounds like what happened to you) can leave a nasty surprise. It is so important to know how you make your money and how changes in income impacts not only your pre-tax rate but more importantly your take home amount. Great news on you still following through with your plans; you are a man of honour!

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