Getting a raise at work is something to celebrate. It proves your hard work didn’t go unnoticed. Whether the raise comes from a promotion, a change of job, or a performance review, it’s a good feeling. Once we see the rise in our wages, one question that comes to our minds is, “What should we do with the extra income?” Deciding what to do with a raise can benefit the long term. However, it is essential to know that a raise can cause problems in your finances if you are not careful managing it.
1. Increase Your Savings for Retirement
One of the most important decisions you should make is to set up a savings plan. This is a good idea if you find saving difficult because you don’t have the money. Now that your income is higher, you should take advantage of that and raise your savings for retirement. An extra income puts you closer to retirement, and there is no better time than the present. So, go ahead and bump up your savings and look forward to an easier life when you’re retired.
2. Set up a Plan to Pay Off Your Debts
If you have debt, there’s a higher chance that your new salary increments could help you pay them off. Being debt-free is often underrated. These debts could be student loans, medical debts, or personal loans. One of the easiest ways to create good net assets is to clear off any debts you may have incurred to start winning financially.
3. Maintain Your Spending Lifestyle
Getting a raise doesn’t mean you go on a spending spree. Using your raises to increase your standard of living is not advisable. This could result in developing an expensive lifestyle that you can’t handle over time. For example, a person may upgrade to a more expensive, latest-model vehicle instead of maintaining the former one that still serves them. If you’re already comfortable with your lifestyle, an increment shouldn’t be an excuse to swap it.
4. Build an Emergency Fund
Preparing for rainy days is never a bad thing. It will support you when your financial situation changes or for an unpredicted acquisition. This will give you peace of mind as it will be there to fall back on when you may least expect to need it. Adding to your emergency fund is one of the best ways to put your salary increments to use.
You should consider that a price rise can occur over time as inflation affects the whole economy. This could result from wage increase, devaluation, or high demand for a product or services more than are available. Before lavishing your raise, you should look at the market to see how far products/goods have increased since the last time you purchased. This will help you plan better.
6. Don’t Pre-spend
You can’t assume the raises will keep coming. Spending money you don’t have is the fastest way to be in debt. You need to ensure you have enough money to cover your expenses before spending it. Don’t pre-spend or depend on a raise when you don’t know if it’s coming. Spending money before it shows up can be disastrous.
7. Save Up for a Large Purchase
If you want to make a big purchase, putting your raise towards it could help you achieve the specific goal you are saving up for. This could be a wedding, tuition, home renovation, or the down payment for a house. It would help if you started by identifying and setting an attainable goal and opening a high-interest savings account to help your money grow faster.
8. Tax Planning
Getting a raise means may mean you’ll owe more taxes. A larger raise can sometimes propel you into a whole new tax bracket. You can talk to a tax advisor about increasing your withholdings to cover the amount you owe. If you are unsure about making a detailed calculation of your taxes, talk to a financial planner or advisor to help you assess them.
9. Reward Yourself
Rewarding yourself is an exciting way to use your raise. You could set aside some “fun money” to treat yourself. You shouldn’t be afraid to reward or treat yourself after getting a raise. After all the hard work and dedication you put in, you shouldn’t overlook yourself when that raise finally comes. So, fund your hobby, get a gym membership, get something nice, or do something you enjoy.
10. Treat Your Loved Ones
Having balance is important. You can save most of your wage increase, but don’t be afraid to treat your loved ones with some of it.
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