What a pay rise actually changes in your budget

Under a payday budget, a pay rise changes one number: what's left over after the set-aside. The set-aside itself stays put, because it's worked out from your bills rather than your pay. Every extra dollar of take-home pay lands in the leftover. What happens to it from there is a choice the method leaves entirely to you.

That's the whole answer, so this is a short post. The parts worth a closer look sit at the edges: which figure to put in the budget, why the leftover grows faster than the pay did, back pay, and the few cases where a rise does reach the bills side.

Why doesn't the set-aside change when your pay goes up?

Because pay isn't part of the sum. In the payday budgeting method, each bill's yearly cost is divided by the number of paydays in a year, and the total is moved to the bills account on payday. Your income appears nowhere in that calculation.

The power company doesn't know you got a rise. Neither does the insurer. Their invoices come in at the same amounts on the same dates, so the per-payday share of them stays exactly where it was.

What does a pay rise look like in dollars?

Here is the household from the pillar guide: $2,100 take-home a fortnight, rent of $520 paid directly, and $174.69 a fortnight smoothed across power, rego, insurance, phone and streaming. Suppose take-home rises to $2,220.

One detail here surprises people. Take-home pay went up by 5.71%, but the leftover went up by 8.54%. Nothing clever is happening. The bills didn't grow, so the whole $120 lands on the smaller number, and a fixed amount added to a smaller base is a bigger percentage of it.

It works the same in reverse when the leftover is negative. What's left over each payday uses the example of a household about $180 short a fortnight. The same $120 rise would leave it $60 short. Still a gap, but a third of the size it was, and you can see exactly how much smaller.

Which figure goes into the budget?

The new take-home pay, from the first payslip after the rise starts. Not the headline.

A rise is usually announced as a yearly salary figure or a percentage, and both are before tax. A $4,000 a year rise sounds like $153.85 a fortnight ($4,000 ÷ 26), but that's a before-tax number. Tax comes out of the extra, so the amount that actually lands is less. Rather than estimating it, the dependable figure is whatever the payslip says. The budget only ever works on money that has arrived.

What about back pay?

Back pay is a one-off. When a rise is backdated, the catch-up arrives as a lump in a single pay, and after that the new regular amount carries on.

Under the method, that lump behaves like any other irregular extra. It doesn't change a single set-aside, and it doesn't change what next fortnight's pay will be. It just makes one payday's leftover bigger than usual. Treating it as part of the regular pay would overstate every future fortnight.

Where does the extra money go?

By default, into the everyday account with the rest of the leftover, where it gets spent the same way. Nothing in the method moves it anywhere unless you decide to.

People handle this differently. Some move the difference straight out on payday, to savings or to a goal, so their spending stays where it was. Others let it raise the fortnight's spending, which can be exactly the point of a rise. Plenty split it. The method takes no view on which is right for you; it only makes sure the extra is visible as a number rather than dissolving into the fortnight.

The leftover already has a job, too. Groceries, fuel and everything else that isn't a scheduled bill come out of it. If those costs have crept up over the year, part of the rise may already be spoken for before you've noticed it arrive.

Does a pay rise ever change the bills side?

Only when something else changes with it. Three cases come up:

• The pay cycle changes too. A new job that pays weekly instead of fortnightly changes the divisor, so every set-aside is recalculated. That's a pay cycle change, not a rise.
• A new bill arrives with the new income. A bigger rent, a car loan, a gym. Each is added as a bill and smoothed like any other, the same way a bill that changes mid-year is handled.
• Your income is irregular. If the budget runs from your lowest realistic pay, a higher rate may lift that floor. Whether to move it is a judgement call, covered in budgeting on irregular income.

Otherwise the bills side is untouched. That's by design.

Updating a pay rise in EachPayday

The update is one edit. Open Manage income and expenses, change the amount on that income, and save. Income goes in per pay, so it's the new take-home from the payslip.

If you make the change partway through a cycle, the app asks whether it applies to the current one as well or only from the next. That keeps a fortnight that was paid at the old rate from being rewritten in your history. The payday checklist doesn't change, since none of the set-asides do. Back pay goes in as extra income on the This fortnight card, where it counts for that cycle only and leaves your regular pay alone.

You can open the demo, change the sample wages, and watch which figures move. Only one of them does.