Your boss calls you into the office and says he likes what you’re doing and you’re a valuable asset to the team. He tells you that things are so good that he’s offering you a raise. It’s definitely an exciting time! You’ve worked really hard to get to this point and should be proud of yourself!
Now, the big question is, what should you do with that extra money? Let’s take a look at five ways to manage your finances after getting a raise.
1) Figure Out Exactly How Much You’re Getting
Not to dampen your excitement, but a big raise might not equate in as big of a boon as you were expecting. Depending on the size of the raise, it can push you into another tax bracket. Then, Uncle Sam will want a bit more of your money, leaving you in not in a much better spot. This is the first thing you should find out.
Do a bit of research, add up the numbers, and calculate how much more you’ll be paying in taxes. Do this before deciding it’s time to upgrade the car or whatever project you needed to get done around the house. It will give you a realistic picture of what you can expect to be making and how much more you’ll be paying in taxes.
2) Don’t Look to Increase Your Spending
You may be really excited to make some extra money. But the worst thing you can do is use it as an excuse to increase your spending. In reality, most people need to not spend as much money as they do. They think it’s fine to take on more debt and add to their expenses. You’re setting yourself up for failure in the long term.
The best thing you can do is find ways to save money. Put it into a rainy-day fund until you have at least 6 months’ worth of salary saved up. Put it into retirement or your kid’s college fund. If an economic downturn happens and you lose your job, you’ll be prepared and can continue to afford living at your means for a time.
3) Donate the Money
You might be thinking the last thing you want to do when getting a raise is to send it back out and give to someone else. The thing is, charitable giving has plenty of economic and financial benefits. Not only are you helping a great cause, you’re also getting a nice tax break. You can write that money off your taxes and the recent tax cuts signed by President Trump actually doubles the standard deduction.
4) Pay Off Your Debts
Yes, paying off your debts is the best way to get to true financial freedom. If you want excellent financial health, you should have no debts whatsoever. Life is much easier when you fully own the things you’ve been paying off. Then you have hundreds, even thousands, of extra dollars in your pockets. Pay off those debts!
5) Invest
The thing that separates the rich from the poor is their ability to make wise investments with their money. You should do the same! Then, when bad times happen, you still have an investment you can lean on. It will make your future brighter as well.
