What To Do with the Money from Your Raise
Congratulations on your raise! Whether this bump in income is something that occurs annually or from a situation like an increase based on your performance evaluation, you might be wondering what you're going to do with your newly acquired funds. Check out these three do's and one don't for what to do with your money after you've been awarded a raise.
The minute your increased salary or hourly wage is announced you might start considering all the shiny new things you're going to purchase but take a step back and think about your savings! If you don't have a nest egg already built up, use this opportunity for a some added financial cushion. If you're awarded a 6% raise, update your direct deposit so that more money is automatically transferred into an interest earning savings account. Continue to live on your previous salary and watch your savings account grow.
If you receive a 3% raise (which has been about the average increase in the United States for years) your take home amount might not be as substantial as you think. Take this into consideration when figuring out where your extra money will go. Invest your new money into your retirement account or maybe an HSA to help you reach the $3,500 limit for 2018. These two options provide more peace of mind knowing that your money is going towards a healthier financial future.
Do pay down debt:
If you have current credit card debt or other loans that are accumulating interest, it might be a good idea to add your additional pay towards these accounts. By adding only $50 or $80 to your monthly payment you will be able to pay down your debt quicker and with less interest! Once your debts are paid in full, you can reassess where those funds will have a better financial impact on your life.
Don't add to your take home pay:
If you spend your "extra" funds as disposable income, you run the risk of seeing no significant difference in your day-to-day life. In order to get the most bang for your newly acquired buck, make sure you address your financial goals and put your raise to better use! Paying down your debt, investing in your future or adding to other savings accounts will feel much better in the long run than being able to buy a new pair of shoes (or something comparable) once a month.
Getting a pay raise can be an exciting time and we understand that some financial decisions can be difficult to stick to but they will be worth it! Resolutions don't have to be put off until the new year.