Tips for Adjusting Wisely to Your Big Raise
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. These are some tips for making the most of a valuable opportunity when your income increases.
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.
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.
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.
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.