I ended up worse off after my pay rise – here’s why

After a pay rise, I actually felt worse off than I did previously. It seems I’m not alone in feeling like this. Read on to find out why.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Serious mid adult Asian woman listening on phone, sitting in office chair in dark room, holding paperwork

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Recently, I received a pay rise at work. While this was undoubtedly cause for celebration, I don’t feel I’m reaping the benefits as much as I would expect to be. Recent research is suggesting I am not alone in feeling like this. Here’s why.


Why my pay rise didn’t feel like a pay rise

I was lucky enough to be given a 12% pay rise. This is a substantial increase in my monthly pay. But my bank balance is not looking any healthier for it.

In between rising energy costs, fuel price increases and food price hikes, it feels as if the extra money is being eaten up before I get a chance to enjoy it.

Filling up my car with petrol now costs me £57. It never used to cost me more than £45. This means the cost of fuel alone has gone up by 27%.

Meanwhile, I’m seeing the cost of my food shop creep up on an almost weekly basis. Each increase may be negligible – 50p here or there – but added up over time, it is starting to make a real dent in my budget.

Of course, I am better off than if I hadn’t had the pay rise. If I had remained on the same pay scale, I would be feeling the price increases far more acutely than I am now.

However, I have no more money left over each month after all my expenses have been paid than I did before my pay rise. If anything, I have less money available to save or invest.


How other people are coping

It seems I am not alone in ending up with less money each month – with or without a pay rise.

According to a recent report from the Office for National Statistics, two-thirds of people (65%) say their cost of living has risen in the past month. 

The most common reasons people gave for the rise was an increase in the cost of groceries (87%), an increase in energy bills (77%) and an increase in fuel costs (76%).

Electricity and gas prices increased by 8.7% and 17.1% respectively during November, and they’ve gone up 18.8% and 28.1% in the last year.

At the moment, people are doing a good job of managing these higher costs. Only 16% said they had to borrow more money or use more credit than usual in the last month. This is actually down from 18% in October this year.

What the experts have to say

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, says: “The spending squeeze is crushing two in three people.”

She explains middle-aged people are feeling the pressure as they tend to have more people living in their homes, meaning more mouths to feed: “It’s far harder to keep costs under control when there are more people making more decisions that affect their energy use.

She goes on, “If you have children at home who take ages in the shower, leave doors open and insist on higher temperatures, the costs quickly mount.”

Coles also warns that “in many cases, the full impact hasn’t hit yet.” She explains that those who are on fixed-rate energy deals have been protected from the rises so far. While those on variable deals have protection from the energy price cap.

She explains, “The full impact of the price rises will only really be felt in April when the energy price cap rises. At that stage, the spending squeeze is going to be even more painful for millions of us.”

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »