So you’ve set yourself a goal. You have a salary you want to work towards. Maybe you aimed high and you are working towards a six figure salary. Maybe it’s something a little less. But you get a raise at work, you get a new job, and you find yourself finally in that position you’ve been working towards. Now what do you do?
I know that what you might want to do is go buy a new car, splurge on something big, but before you go do that, let’s do some planning.
Increase Your Retirement Savings
Are you maxing out your 401(k) contributions? Now’s the chance to increase those contributions and work towards that max. For 2020, the max you can contribute is $19,500. Just be careful – if you’re aiming to hit the max, you want to be sure you don’t hit it early if you get any sort of matching from your company. If at the beginning of December, you hit your max, you can’t contribute anymore and then you won’t get matching. You definitely don’t want to risk missing out on the extra funds.
Increase Your Emergency Fund
Do you have an emergency fund? Common wisdom says 3-6 months worth of expenses, but the amount is up to you. Basically, this is money set aside for those unplanned expenses. They don’t even have to be big emergencies like losing your job. Maybe your car needs repairs. Maybe your fridge breaks and you lose all the food inside. Keeping money set aside for emergencies prevents you from having to take on additional debt when something happens. And when you use some of the money in the emergency fund, make a plan to stock back up.
Open an HSA
A health savings account is a way to set aside pre-tax money to be used on eligible medical expenses. You need to be part of a high-deductible health plan to be eligible for an HSA, but if you are, this can be a great way to reduce your tax liability and be prepared for planned medical expenses.
Pay Down Debt
If you have any high interest debt, you probably should have tackled this first. But assuming you don’t have outstanding credit card debt or other high interest debts, take a look at the debts you do have. Maybe you have a car loan you could pay off earlier, saving yourself that interest.
Save for Big Projects
Maybe you’ve been waiting to buy a house – now’s the time to get saving on that down payment. And if you’ve got a house, then I know you’ve got a whole list of improvements you’re planning to make. I know at my house, I want to put in new windows and new flooring in my basement. I just purchased a new washer and dryer – something I’ve been saving for over the past year. It was a great feeling to finally have that done. It’s something I absolutely needed to do.
Make Smart Choices
It’s often very easy to think “I’ve got more money, now I can spend more money.” While that’s true, you want to make sure that you’re making the smart choices before you decide to spend more money on things you might want. Of course, I always tell everyone that money doesn’t all need to be practical. Make sure that you spend on fun. Maybe you take a simple vacation every year or splurge on a bigger vacation every couple of years. Just choose wisely.