Ah, the feeling you get when a raise comes your way. Knowing that you are appreciated, your hard work is being recognized, and your budget got a little stronger, is just a few reasons why a raise is so wonderful (and hard to come by). It’s not always easy to get a raise, especially when your company isn’t doing as well as they should, or they are on the smaller side. However, when a raise does come your way, act accordingly. There are certain things to do when you get a raise to help take your situation to the next level.
Whether your raise came in the form of a percentage increase after a year of work, or accepting a new position, there are certain things you can do with it to put you ahead. Be proud of your accomplishment, but start thinking strategically. The worst thing you can do is increase your cost of living. You did just fine before the raise, you can do just fine with it.
#1 Wait for the Effect
Before you jump the gun and start planning how to spend your raise money, sit on it for a paycheck or two. Who knows what your paycheck deductions will look like with the raise. Continue business as usual as you get used to the deposit into your bank account being larger than usual. It may be tempting to spend it, but the increased deposit excitement will wear off after a few paychecks.
#2 Assess Your Situation
If this raise came at the right time because you had some past due bills, there is an issue. If you weren’t able to cover all of your living expenses on your prior salary, you may not be in much better shape with your new salary. Take some time to assess your situation and get to the root of any overspending. Are there certain expenses that can be cut back to help you live within your means? You certainly don’t want to be in the negative every month with your income and expenses, but you also don’t want to break even. You want a surplus each month, so you can get some things done.
#3 Increase Your Retirement Contribution
After you get an idea of what your new take home pay looks like and took a hard look at your spending situation, you should increase your retirement contribution amount. You should have already been contributing what your company will match, but now you can increase your contribution rate even more. Even an increase of 1% will add up over time. You should know what your surplus will look like each month, so ensure a portion of it goes towards your future.
#4 Pay off Debt
If you have debt, a top priority (raise or not) should be paying it off. Now that you have more money coming your way, you should be able to contribute more to your monthly debt payments. Paying off debt with extra income should take priority over saving, because once debt is gone, you can really jump start your saving efforts. If you have debt, increase your 401k contribution amount to 1% and keep all other saving amounts the same. Focus all your energy and extra income on knocking that debt out once and for all.
#5 Frugally Treat Yourself
Is there a new top you’ve been dying to buy? Do your eyebrows need some taming? If there are certain things you’ve been putting off because you’ve been trying to stay in budget, now is the time to treat yourself. I’m not saying to go overboard, but you do deserve to get yourself something nice. You earned that raise, and you should celebrate it! When I got my raise at work, I went and purchased new workout gear. The workout clothes I had prior were tearing up, but I wore them anyways. In my mind, I had other priorities. However, after purchasing the new workout gear I felt so much better. I didn’t feel like I spent money unnecessarily.
#6 Finish Your Emergency Fund
Assuming that you have no debt, you are living within your means, and your raise resulted in additional disposable income, make sure your emergency fund is finished. Your emergency fund should be 3-6 months’ worth of expenses. If you had 3 prior to your raise, focus on getting to 6. You never know when an emergency will pop up, so leverage your new raise to help you prepare. Plus, once you hit your desired emergency fund amount, you can put that money towards something else. Read How to Successfully Build Your Emergency Fund for more insight.
#7 Start Saving for a New Goal
If you already have no debt, a maxed-out 401k plan, and a 6-month emergency fund, what can you save for next? Do you want to move to a new house? Are you thinking of taking a dream vacation? Can you start putting money towards your child’s education? There is always something to save for, so your work is never finished. Once the primary goals are covered, focus on the other bucket list items you’ve been wanting. I can’t think of a better way to make the most of your new raise! Can you?
Related: 12 Ways to Use Your Tax Refund
Coming into extra money is always a blessing, however what you do with it can put you ahead or set you back more than you think. When extra money comes your way, be smart about it – especially if it’s a one-time deposit. You can leverage it to your benefit or deficit! When was the last time you got a raise? What did you do with the extra income? Share your raise experiences and advice with myself and other CGS readers by leaving a comment below!