Getting a raise at work either due to recognition of your hard work or being promoted is certainly a reason to celebrate. But at the same time, it’s easy to fall into the trap of using more credit card debt, a trap many people fall into when their income goes up. While a significant raise can mean you don’t have to be as frugal as living paycheck to paycheck, you still should be prudent about where your money is going.
Consider A Raise An Opportunity To Take Care Of Minor Household Expenses
When you get a raise and have a little more funds to use, consider looking at certain maintenance costs around your home that you might be able to address now. Maybe there’s a minor plumbing or central air issue you could have fixed and prevent it from turning into a major issue down the road. Maybe you could have maintenance done on your car to avoid the need for emergency repairs later. You probably shouldn’t go spending your new found income on luxury upgrades or new car payments; but tackling some smaller home tasks if you can might be a good idea.
Start Paying Off Debt So You Can Be Financially Free
As your income starts growing, that should also be the time that your debt starts shrinking and your credit starts improving. One of the first debts you should eliminate is debt coming from installment loans taken out for bad credit, since these loans are intended for short-term unexpected emergencies. From there, you should prioritize paying down other debts like credit card debt, student loan debt and auto loans so they aren’t hanging over your head forever. Cutting spending such as unnecessary cell phone or cable TV bills can also help these debts get eliminated quicker.
Contribute More Income To Immediate Savings
As your income from your raise increases and debt goes down, your savings should go up. You now have more money to increase the amount you set aside for those big emergencies such as out of pocket medical costs, travel you may need to make in the event of a funeral, or car accident costs you have to pay as part of a collision insurance deductible. Instead of having only $500 or $1,000 to handle these emergencies, you should set new goals of $2,000 or even $5,000 over the course of a year to have ready. Remember, just because you’re living better under your new income doesn’t mean your emergencies are going to stop.
Spend Wisely On Family Fun
With a better budget to work with, it is alright to plan some family fun outings and vacations, and there certainly are memories from those that are priceless. But you still need to plan ahead for those and stay within your means whenever you plan your travel distance, book hotel rooms, and visit amusement parks and restaurants. Do your travel reviews before going, look for discount coupons to use, and always stay within your spending limits when you go on these.
Contribute More Towards Retirement
When you get a raise, you also now have more money to contribute to your future that can grow. You can add more to your retirement through your 401k, or even start an IRA with new funds that can grow tax free and be ready once you get there. You should especially take advantage of this if your employer offers matching funds because then your retirement savings will double and give you an even bigger nest egg down the road.
The bottom line is getting a raise or added bonus pay can certainly allow you to raise your standard of living a little if you use this new money correctly. But it shouldn’t be looked at as a time to neglect financial discipline.