Got a Big Raise? Make These 4 Money Moves
Whether it comes in conjunction with a promotion or on its own, getting a large raise at work is something to celebrate. And if you want to make the most of your newfound cash, here are four important moves to make.
1. Set up a new budget
Once your pay increases, it may be tempting to start spending a lot more money on living expenses. That could mean getting a new apartment, signing up for a few different subscription boxes and streaming services, or letting yourself dine out more frequently. But before you get too deep into that spending, take the time to set up a new budget based on what your improved paycheck looks like. Remember, landing a $6,000 raise doesn't mean you get to actually keep $500 a month -- you'll need to account for taxes, so see what your new paychecks amount to, and use that figure to determine how much you can afford to upgrade your lifestyle.
2. Use your newfound cash to close some financial gaps
Having more money at your disposal gives you a prime opportunity to make up for whatever financial shortfalls you may be grappling with -- so figure out what those are and use your heftier paychecks to address them. For example, if you're short on emergency savings, you can use that extra money to boost your bank account balance. You should, ideally, have anywhere from three to six months' worth of living expenses socked away for unforeseen bills. And if your emergency fund is solid but you're still sitting on debt, you can use that extra cash to pay it down to avoid wasting money on interest.
3. Boost your retirement plan contributions
An uptick in earnings offers you a great opportunity to ramp up your retirement plan contributions. If you have a 401(k) plan through work, doing so is easy -- just tell your employer you want to allocate a larger percentage of your earnings for retirement, and your payroll or HR department will take care of the rest. Even if you're already contributing steadily to a retirement plan, it never hurts to boost your contribution rate. Setting aside an extra $200 a month, for example, over two decades will give you an additional $98,400 to work with during your golden years, assuming your investments generate a 7% average annual return during that time, which is a reasonable assumption based on the stock market's historical performance.
4. Invest in your continued success
Chances are, your employer didn't give you a raise for no reason. Rather, you earned it, whether by working hard or climbing the ranks. And now that you're privy to that extra cash, you can use it as an opportunity to earn even more money in the future by putting some of it toward career development. That could mean taking an online or in-person course that allows you to learn a new skill, or paying to attend a business conference your employer won't foot the bill for. You might even decide to go back to school to pursue an advanced degree.
Getting a big raise is a wonderful milestone. Make the above moves and you'll be in a great position to maximize your newfound cash.
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