Guess first
Can you get a raise every single year and still end up poorer?
Commit to an answer. Being wrong here is the fastest way to learn this.
The setup
Here is the whole situation.
May 2016 · take-home
$4,000 / month
Every year after that
+3.0%
A raise. Every single year. Ten of them.
May 2026. Where does this person stand?
The answer
Behind. By more than you would guess.
Their paycheck in 2026
$4,000
The same 2016 life, priced in 2026
$4,000
Short, every month
−$0
$2,452 over a year, out of a life that did not get any bigger.
You said behind
Right. Ten raises, and the same life still costs more than the paycheck covers.
Why
Two growth rates. Only one of them shows up in the email from HR.
34.4%
Their pay grew
39.5%
Prices grew
A raise tells you what happened to your dollars. Inflation tells you what happened to what those dollars buy. A raise is only good news relative to the second number.
Try again
What annual raise would have kept them exactly even?
Prices rose 39.5% over the ten years. Careful: the answer is not 3.95%.
3.39%
Your turn
Your boss offers you a 4% raise next year. What is the first number you would want?
Lesson complete
One idea, in under a minute.
A raise is a number about your dollars. Whether it is good news is a comparison, and the other half of that comparison never arrives in the same email.