If you’re a working person, the latest news on pay raises probably isn’t a surprise, though there may be some comfort in knowing you’re not alone: Raises are slim to non-existent.
The U.S. Labor Department reports that the average worker’s pay increased by a measly 2.2% in the 12 months ended March 31.
Of course, you may be happy just to have a job. Historians say job satisfaction was actually pretty high during the Great Depression, when unemployment exceeded 20%. Obviously, job-satisfaction surveys only count people who have jobs.
If wages are to rise at lower-than-average rates, as many economists expect, it makes sense to adjust your financial plans.
It’s easy, for example, to rationalize stretching the budget to handle a big mortgage payment if you figure you’ll make more in the future. But if your pay will stay relatively flat, it will pay to keep payments low so you won’t face years and years of financial stress.
The Maximum Mortgage Calculator will show the largest loan you can qualify for given your income and debts. But that doesn’t mean you should feel good about spending that much. Use the BankingMyWay.com shopping tool to find the lowest mortgage rate available, then plug the rate into the Mortgage Loan Calculator to see what your payments would be.If you can’t count on respectable raises, steer clear of adjustable-rate mortgages, since rate resets can raise monthly payments substantially. Although there are exceptions, ARMs probably aren’t a good choice right now for most people anyway, because they don’t offer enough up-front savings to offset the risk of future payment hikes.
The small-raise prospect also should be worked into your retirement plan. Software programs like Quicken (Stock Quote: INTU) typically ask if the user expects to increase the amount contributed to long-term savings every year, and the answer can have a big effect on projections.