Being recognized for your hard work by receiving a raise is one of the best feelings there is. But it’s what you do next that will have an impact on your financial future. Many people see getting a raise as a good reason to go on a spending spree or open new lines of credit, which we don’t recommend. Even if you don’t spend it frivolously, just rolling the extra money into your monthly budget without planning for it means it’s likely to come and go without making any real impact. Here are the smart money moves to make following a raise:
Pay Off Credit Card Debt
It may sound boring, but it’s a smart move. Lingering credit card debt can prevent you from doing other things you want and need to do. You’re already living on your current salary, so devoting all the extra money from your raise to pay down debt shouldn’t be an issue. If you don’t think the amount of your raise is enough to make a real difference, call us! We’ll help you work out a budget that allows you to put the maximum amount toward paying down debt.
Start or Increase Retirement Savings
The same principle applies here. You’ve already worked out how to live on your current salary, so diverting the proceeds of your pay increase into your 401(k) or other retirement savings shouldn’t be a problem. It might not seem like much, but as you watch your savings grow, you’ll be glad you did it — and your future self will thank you.
Boost Emergency Savings
You knew we were going to say it! An emergency savings account that contains at least three months of living expenses is one of the best ways to safeguard your financial future. In the event of a major life change such as a sudden illness, injury, or job loss, you can rely on that money and avoid running up credit card debt. Use your raise to establish an emergency savings account if you don’t already have one, or to start contributing more to that fund if it’s already in place.
Treat Yourself (Just Don’t Go Crazy)
You worked hard to earn that raise and deserve to have some fun! Treat yourself to a nice dinner, a new gadget, a day at the spa or another indulgence — but keep it under control. The idea is to celebrate and acknowledge your accomplishment without going overboard and starting a spending spiral.
Still waiting for that well-deserved pay increase? Be sure to check out tips for negotiating a raise here.