--- title: How to budget after a raise (so you actually keep it) | Allocate AI description: A raise disappears in six months unless it's assigned the day it starts. Four steps to find the real after-tax number, give it a job, and enjoy a slice on purpose. canonical: https://allocateai.io/guides/how-to-budget-after-a-raise site: Allocate AI — https://allocateai.io --- # How to budget after a raise (so you actually keep it) A raise disappears in six months unless it's assigned the day it starts. Four steps to find the real after-tax number, give it a job, and enjoy a slice on purpose. Raises vanish. Not through any single decision — through fifty small ones, each reasonable, that together absorb the new money into the old life within two or three paychecks. The fix is not discipline; it's timing. A raise that's assigned before the first bigger paycheck lands is kept. One assigned "once things settle" never is. ## Find the real monthly number A $12,000 raise is not $1,000 a month. After federal and state tax at your marginal rate and FICA, it's more like $650–$750 in take-home — and if the raise moves you over a 401(k) percentage, a bit less. Run the old and new salary through the [after-tax income calculator](https://allocateai.io/calculators/after-tax-income) and subtract. That difference is the number you're assigning. Everything else in this guide is about that number, not the headline. ## Assign it before the first bigger paycheck The order that works for most people: 1. If the [emergency fund](https://allocateai.io/glossary/emergency-fund) isn't at target, half the raise goes there until it is. 2. If the 401(k) isn't at the [match](https://allocateai.io/glossary/employer-match), fix that first — it's the only place the raise is doubled. 3. Then the goal that's furthest behind its date. 4. Then a fixed slice — 20–25% of the raise — to spend, permanently. This is what makes the raise feel like a raise. The 401(k) piece has a bonus: raising the contribution percentage in the same pay period as the raise means you never see the old take-home go down. That's the one time in a year it's painless. ## Re-date the goals, and notice the year $500 a month more toward the house fund moves the date by months; $500 more into retirement, compounding for decades, is a different order of magnitude. The [compound interest calculator](https://allocateai.io/calculators/compound-interest) is worth thirty seconds here: at 7%, $500 a month for 30 years is about $610,000. Assigning a raise well is one of the few decisions that changes the shape of the whole plan. ## Watch the fixed costs for six months Lifestyle creep isn't dinners; it's the recurring things — the nicer apartment at the next lease, the car upgrade, the subscriptions that each cost less than the raise. Set a simple rule: for six months, no new recurring cost. After that, if the assigned pieces have held, a deliberate upgrade is fine. It's the accidental ones that eat the raise. ## The plan, in Allocate You'd say: "I just got a $12,000 raise, starts next paycheck." Allo-Bot proposes: - Take-home change: about +$720 a month (32% federal marginal, 5% state, FICA). - 401(k): contribution rate 6% → 8% in the same pay period; cost $200 of the $720 before tax, and the match rises with it. - House fund: $900 → $1,200 a month; date moves from October to June. - $180 a month to spend, unassigned, permanent. - Rule for six months: no new recurring costs; the brief flags any new subscription or fixed line that appears. If you'd rather the raise went to the trip instead of the house, say so — the plan re-proposes and stages the change for your yes. ## Frequently asked questions ### How much of a raise should I save? Assign all of it, then decide how much of the assignment is spending. A 75/25 split — three-quarters to goals and retirement, a quarter to enjoy — keeps the raise and still makes it felt. Do it before the first bigger paycheck. ### Why is my paycheck only a little bigger after a big raise? Tax and FICA take their share at your marginal rate — often 30–40% combined — and a higher 401(k) contribution takes more. A $12,000 raise typically shows up as $650–$750 a month in take-home. ### Should I increase my 401(k) contribution with a raise? Yes, in the same pay period: you never see the old take-home fall, so it's the least painful time to raise it. At minimum reach the employer match; beyond that, a point or two per raise builds to the maximum over a few years. > This guide is educational and uses invented numbers — not investment, tax or legal advice. Your income, taxes and goals are your own; talk to a qualified professional about your situation. ## Tools this guide uses - [After-Tax Income Calculator](https://allocateai.io/calculators/after-tax-income) — Your real take-home after federal, state, and FICA taxes. Handles bonuses and signing bonuses correctly. - [Compound Interest Calculator](https://allocateai.io/calculators/compound-interest) — Project investment growth with multi-scenario modeling, contribution changes, and lump-sum additions. - [Take-home pay (gross vs net)](https://allocateai.io/glossary/take-home-pay) — The amount that actually reaches your bank account after taxes, insurance, and retirement contributions come out of your gross pay. - [Marginal vs effective tax rate](https://allocateai.io/glossary/marginal-vs-effective-tax-rate) — Your marginal rate is the tax on your next dollar of income; your effective rate is total tax divided by total income, and it is always lower. - [Employer match (401(k) match)](https://allocateai.io/glossary/employer-match) — Money your employer adds to your 401(k) based on what you contribute, such as 50 cents per dollar up to 6% of pay; it is part of your compensation. - [401(k)](https://allocateai.io/glossary/401k) — An employer-sponsored retirement account you fund from your paycheck, with tax advantages and a yearly contribution limit of $24,500 (2026). ## More guides - [How to budget a bonus before it lands](https://allocateai.io/guides/how-to-budget-a-bonus) — Decide what it does before the deposit shows up - [How to budget a job change](https://allocateai.io/guides/how-to-budget-a-job-change) — The gap between checks, the sign-on, what resets, and the stock you leave behind - [How to save for a house down payment](https://allocateai.io/guides/how-to-save-for-a-house-down-payment) — From target price to a dated goal, including the cash people forget **Say it. Allocate writes the plan.** Tell Allocate what changed in plain words. Allo-Bot proposes the plan from your own numbers and stages every change for your yes — nothing moves until you approve it. [Get started](https://app.allocateai.io/signup) --- Allocate AI is a budgeting and financial-planning app: link your accounts, say what you want in plain words, and it writes the plan and stages every change for your approval. Read more at https://allocateai.io or see all pages in https://allocateai.io/llms.txt.