Just got a pay raise. What now?

[jcherni]

(I swear I'm not writing this just to brag )

I'm getting a pay raise next month.
Quite a big one as well (well, at least much larger than I was expecting, since there was no salary readjustment last year due to COVID).
Even after taxes, it is still some nice plus on my annual income.

This is the first time I get a raise since I started this investment life. So I'm not sure what to do with the extra money.

I'm single, no kids. I have no debts either (I live in a rented apartment, no car, no loans).

I have 4 months worth of living in my emergency fund.
Of all money that is left at the end of the month, 75% goes to eMaxis Slim 先進国株式インデックス, and 25% to eMaxis Slim 先進国債券インデックス.
(well, since there are no more nomikais or travels or otherwise variable expenses in this COVID world, pretty much all money that is left after the fixed expenses goes into the eMaxis.)
I rebalance to these percentages at the end of the year. I am also able to max out my annual NISA comfortably.

I also do my donations to a few charity institutions every year, once the winter bonus comes.



Randomly searching on blogs on what to do with a pay raise, they always say "Lower your debts!" and "Max out your retiring contributions!".
The first one does not apply to me. The second one kinda applies, since my company will start allowing DC matching contributions later this year, but the company DC was already quite close to the limit anyway, so I will only contribute a few thousand yen myself.

The easiest way to use this extra money is to simply increase my monthly eMaxis amount, but this somehow seem a little bit dull way of enjoying a raise (like the Japanese would say, 芸がない).

I wonder if the colleagues have some suggestions.

[RetireJapan]

I would put some (half?) into your regular investments, and spend some (half?) frivolously on something you will enjoy like food, entertainment, or (probably not right now) travel. Or save it for travel or fun when Covid is over.

[jcc]

Depends on your long-term objectives?

Do you want to retire as early as possible? Or do you want to retire with more money? Then throw it into investments.

If you don't have a retirement roadmap(how much you need and how you're going to get there), now may be a good time to draw it up, and figure out if/how much you need to invest to get there(just remember to use pessimistic figures for expected gains)

Once you have that figured out the answer will probably present itself to you. Just remember that you shouldn't sacrifice your happiness now for some far away future. There's nothing wrong with treating yourself, you just need to keep your spending under control

[JapaneseMike]

Congratulations on your pay rise!

So, your company has a DC plan, do you also have an iDeCo? You may be limited to only 12,000 a month, but it's still a good option, especially since it will lower your overall taxable income, which will in-turn reduce your local tax next year.

While you mention it's the boring option to just invest more in the same products - remember, boring is good. With the autobuy options, just fire and forget. It's only boring if you think about it too much If it was me, I might look to put all/most of it into eMaxis Slim 先進国株式インデックス or eMaxis Slim All Country, or the eMaxis slim S&P500. I wouldn't bother with the significant allocations to bonds, but that's just me.

Not sure if this is right for you, but what I've done whether because covid or other uncertainties I feel it's nice to hold cash as both a safety net, but also to be ready to take advantage of opportunities as they arise. Over time I've built a larger cash reserve than just a few months - a cynical person might call it my foolish 'time the market' backup plan.... - I keep a reserve in both my Japanese broker and IB to try and improve returns from corrections / adjustments that happen. It doesn't work for short corrections since time to buy on mutual funds is delayed, but for prolonged corrections I could buy once off or increase my daily purchases /etc.

[beanhead]

Buy a treat to congratulate yourself!
And possibly increase your emergency cash fund a bit, in case of a rainy day...?

[mighty58]

If your current spending levels already have leeway built in to accommodate the occasional luxury purchase (however you define that), then I would say don't change anything and just plow the raise into investments. Lifestyle inflation is often the trap that people fall into... and it's much easier to avoid it in the first place than attempt to step backwards once having gotten accustomed to it.

[beanhead]

Lifestyle inflation is often the trap that people fall into... and it's much easier to avoid it in the first place than attempt to step backwards once having gotten accustomed to it.

True. Very good point. Reminds me a little of 'The Millionaire Next Door'. Drive a used/inexpensive car for a long time, etc...

I just decided to treat myself to a new home PC as mine is running really slowly. Checked and I bought it in early 2010.
Sometimes, making quality purchases, infrequently, can also be part of a sensible, frugal lifestyle.

[Tkydon]

Pay yourself first. After the one-off treat, lock the monthy net increase up 100% in your investment strategy, before you get used to the increased amount in your bank every month.

[Max]

I know a Nigerian Prince who is eager to get in touch with you.