With unemployment high and wages low, getting a raise may be the last thing on your mind. Still, you're likely to get such good news at some point in your working life. Here are some tips for making the most of this valuable opportunity when your income increases.
Dealing With the Financial Aspects
1. Calculate How Much You're Really Getting
Before you make plans for spending your money, figure out the actual total. An increase in income may push you into a higher tax bracket, affecting your net gain.
2. Establish Goals
Think about your goals for the short, medium, and long term. That way, you can set priorities. Discuss the matter with your spouse or other loved ones who will be affected so you're all on the same page.
3. Minimize Additional Monthly Expenses
Protect your peace of mind and your finances by reviewing your monthly budget carefully. You may decide it's worthwhile to take on new car payments, but get a clear picture of the financial obligations you're adding.
4. Increase Your Retirement Contributions
You've probably heard a lot of statistics about how many people need to save more for retirement. If you can afford to max out your contributions to your 401K and IRAs, go for it. The sooner you start saving, the easier it will be to build an adequate nest egg.
5. Give Yourself a Treat
You deserve something nice. Reward yourself with a new set of golf clubs or a trip to Paris. It may make it easier to resist the temptation to spend extravagantly over the longer term.
6. Create an Emergency Fund
Layoffs are now a fact of life, so emergency funds matter more than ever. Try to put at least 3 months of income in the bank.
7. Pay Off Debts
Getting rid of debts is also a wise strategy. It will improve your credit rating and feel liberating. Done With Debt can help you create a solid plan to eliminate your debts. Visit donewithdebt.com to learn more.
8. Set Up Automatic Deductions
If you know that you have a tendency to fritter away a windfall, keep your hands off it. Set up direct deposits and automatic payments through your bank.
9. Share the Wealth
Experience the joy of philanthropy. Give an extra donation to a charity you care about or start your own community initiative.
Other Considerations When You Get a Raise
1. Distinguish Between Experiences and Possessions
Studies show that experiences contribute more to our happiness than possessions do. It may make more sense to take a vacation than to buy a bigger screen TV.
2. Be Considerate of People Experiencing Financial Losses
You may feel awkward about your success if those around you are struggling. People who love you will often be delighted at your progress. On the other hand, you may decide to keep your good news to yourself in cases where it could trigger jealousy.
3. Prepare for Loan Requests
Like any lottery winner knows, people may approach you for assistance if you have more money. It's up to you whether you think it is prudent to loan anyone money regardless of your financial ability.
4. Start Earning Your Next Raise
You must be doing something right to get a raise these days. Keep tracking your accomplishments so you can capitalize on the momentum.
5. Recognize That Income Fluctuates
Keep in mind that your income will probably rise and fall throughout your career. Find strength in spiritual practices and personal relationships rather than basing your sense of self-worth on how much you make.
Congratulate yourself for the excellent performance that earned you a raise and put that extra cash to the best use for you. By keeping your goals in mind, you can invest your funds in the areas that are most gratifying for you while being better prepared for whatever circumstances arise.
If managing your new income and paying off debts seems overwhelming, Done With Debt is here to help. Visit donewithdebt.com to learn how we can assist you in creating a solid financial plan and achieving financial freedom.
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