What to Do When You Get a Pay Raise
Whether it’s an annual expectation or something that catches you by surprise, every time you receive a pay raise you should take some time to figure out how you’re going to work this raise in your favor. How can you use this extra bit of money on each paycheck to help your financial situation? Here are a few options you can consider.
Your Paycheck Goes Up, Your Debt Goes Down
If you have unpaid debts, use your pay raise to help pay them down faster. While this isn’t necessarily a fun choice, and you won’t see instant results, you will speed up erasing your debts, which is definitely a step in the right direction. Bonus tip: focus on the debt that has the highest interest first.
What Does Your Retirement Look Like?
Have a 401(k) account or IRA? Take the raise you received and increase your contribution. Even with just a 1% increase, it could have a tremendous effect on your future and the level of comfort you will experience when you retire. The more you contribute, the bigger your safety net.
Save Yourself During a Financial Emergency
If you were to find yourself in a financial emergency and needed $5,000, would you have enough in your savings to cover it? What about $3,000? $1,000? If you can’t answer those questions with a confident “yes”, you should consider using your pay raise to beef up your savings. Make it easy on yourself and set up automatic transfers from your checking to your savings account. Pretend like that pay raise doesn’t even exist and watch your savings soar.
Do you feel you’re on track with your retirement and emergency savings, and have little to no debt? Then why not treat yourself? You’ve worked hard for your pay raise, so maybe a little splurge is in order. Whether you set aside money for a future vacation or make a material purchase that will increase your quality of life, reward yourself for a job well done.
Of course, you don’t have to pick just one of these options. You can combine a couple of these or all of them – just make sure that you are making the best use of your pay raise!