Every time you get a raise, there is a little thrill as you consider what you can do with all of that extra money. Depending on the size of your raise—cost of living versus a new job or promotion—you need to consider how much it really will affect your finances. So often people just increase their spending to match the amount of money they are making, and so do not reap the benefits that you could otherwise. If you are able to make ends meet on your current salary here are three tips of what you can do with that raise.
1) Increase your 401K contributions by the same amount of your raise. This way the tax increase will not really affect your take home pay. You will never miss the money, because you have never seen it. In addition you can begin saving more aggressively for retirement. You should do this until you have maxed out your 401K contributions.
2) If you can pay your bills, but you have debt that you would like to pay off simply apply the extra money to your debts. This is an easy way to reach your financial goals quicker. If you continue to live off of your old salary, you will not miss the money. As you pay off your debt you will find that you have given yourself a raise since you no longer have to make large debt payments each month.
3) If you are debt free and have maxed out your retirement contributions, take a look at your entire financial picture. If you have enough emergency savings and your future looks good, go ahead and celebrate. You may want to save up for the cruise you have always wanted to take or simply stop cutting corners as much as you have been. As you are responsible with your money, you find that it works more for you, than you for it.
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How to Ask for a Raise…and Get It–Part 1
How to Ask for a Raise…and Get It–Part 2