Preheat oven to 350 degrees. Grease a 1 1/2 quart casserole dish and set aside.
For pudding: In a medium bowl with wire whisk, beat milk, sugar, vanilla, salt and eggs until well mixed. Add bread, raisins and butter. Toss until bread is well coated. Sprinkle with cinnamon. Bake in preheated oven for 55 to 60 minutes until knife inserted in center of pudding comes out clean.
For Vanilla Sauce: In a medium sauce pan melt butter. Add sugar, beaten egg and water. Stir constantly until mixture begins to boil. Be careful not to scorch bottom. Remove from heat and cool. Stir in 1 t. vanilla and pour over baked pudding.