August was a happy month for most employees in Luxembourg: wages, salaries and pensions benefited from “indexation” leading to additional euros in bank accounts on pay day. What do we do now?

Automatic indexation

A specificity of the Luxembourg economy, indexation is triggered to keep income in line with increasing prices. Last July, Statec announced that the annual inflation rate of the consumer price index amounted to 1.5% in July and triggered the automatic indexation of wages, salaries and pensions, raising them by 2.5% as of 1 August 2018.

While business owners shake their heads at what they see as a loss of competitiveness, employees around the country celebrate their increased salaries and convince their new-to-Luxembourg colleagues that it is not a joke. Automatic wage indexation is not common in Europe, let alone the rest of the World. The idea behind the indexation is the preservation of purchasing power of households – it helps them keep up with food, clothes, fuel and other commodities’ raising prices.

New-found money?

You might have spent your new-found money during the Braderie or had to invest it in school supplies, but since this is a recurring extra income here are a couple of things to keep in mind.

Indexation is a measure to counteract the effect of inflation. Unlike a salary increase where your income increases while all other things remain equal, in this case your income is increased as all other prices are going up. Check your budget and make sure you still have a balance between income and expenses at the end of the month.

As the last indexation took place in January 2017, Statec had already announced earlier this year that a new indexation was expected during 2018, so the increased salaries of August were not totally unexpected. Still, it is an unplanned raise that you could easily put aside in investment funds with automated solutions such as Invest Plan.

Another way to prepare your future is using the 10 Years Savings Strategy: think of the next ten years of your life and imagine predictable expenses such as travel, wedding, children, house, retirement... You can set up specific savings accounts to make sure you save up for these life events and are ready when the time comes!