When a pay rise is not a pay rise.

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Have you ever received a pay rise only to find that you still struggle to make ends meet? What most people don’t realise is the concept of a dollar today being worth less tomorrow because of inflation and/or the dreaded Consumer Price Index.

Victor Borge Quote

Every year we are encouraged to spend our hard earned dollar to keep the economy churning along and unless you’re a politician you might be lucky to receive a small pay rise for all your hard work. Or are you?

In simple terms we might believe that a 2.15% increase in our salary is a small gift and an opportunity to buy that overdue (insert item here) but in reality it isn’t always what it seems. Let me explain.

Let’s take the average entry level AO2 government employee as an example and compare their 2015 pay rise to riggers of inflation.

In 2014 an AO2 at the highest increment was paid $1,953 per fortnight. Now if they received a 2.15% pay rise then they would then receive $1,996 approximately. Now let’s talk tax. Their take home pay in 2014 was $1,953 – $348 = $1,605. In 2015 it was $1,996 – $364 = $1,632. What do you think the percentage difference is now?

$1,605 ÷ $1,632 x 100 = 1.65%

Most of us don’t think about gross versus nett when we negotiate or receive pay rises. We only deal in before tax dollars and when we use the annual salary rather than the fortnightly salary we are met with the illusion of a significant rise. $50,947 to $52,069 = $1,122 (Public Service Award 2012).

But what about inflation? Let’s now look at the Australian Bureau of Statistics (ABS) website for the facts.

In December 2015 (when the AO2’s pay rise commenced) inflation stood overall at 1.7%. Wait you say! “My take home pay is now less than inflation.” Yes it is. However, the ABS also breaks down each section of consumer spending into categories.  Take a look at the figures below.

CPI

You can see by the diagram that the big ticket items are alcohol/ tabacco and education. It’s interesting to see, using the CPI variances, just how your spending affects the overall market. At the end of the day this AO2 had $4 left over and by understanding this information it would be easy to adjust their spending to keep ahead of the game.

Whatever (if ever) month you receive a pay rise I encourage you to use the ABS statistics to do a financial health check and make sure you are moving forward.

You can find this calculator in the FREE STUFF section of this website.

www.abs.gov.au