Are you getting a raise or promotion soon? If you are, it could be a good time to make a few subtle changes to your financial situation. Here are a few moves to make with this new found money so that you can be money smart.
What is your first piece of advice for this new money?
Do nothing until the raise is reflected in your check, if your raise is going to take a couple of pay periods to go into effect, wait until you see the new amount before making any financial decisions. It is important to understand exactly how much you will be increasing your net take home pay.
What is a smart a move that people should do with each raise?
A really good financial move is to not increase your spending levels with each raise. If you can keep spending at the same level for three year or more consecutive years and allocate those raises to savings, you will have a double financial impact – less expenses and more savings. We have a tendency to spend what we make and this doesn’t help us improve our financial situation.
What are good uses for raises that offer long term financial benefits?
Increase your retirement contribution percentage so that you can get to 10% and start saving or increase your savings in your emergency fund. These two moves have so many benefits and are excellent uses of an increase in income.
Are there any moves to make if you have a mortgage?
Look to refinance your mortgage to a shorter term, your new found income might help you pay your mortgage off quicker. If refinancing isn’t an option because the rate is higher, consider sending some of that raise towards paying off your home. Just balance this with increasing your retirement savings.
What is one of the biggest mistakes people can make with their raises?
One the biggest temptations when getting a promotion and a raise is to go on a spending spree, from buying a new car to changing houses. The best practice to follow is to give yourself 12 months before incurring new debt or making purchases so that you can complete the first four steps and build a strong financial foundation to move forward.
Any other advice for what people can do with their increased income?
Give more to charity, if you are extremely devoted to a particular cause or effort, consider giving a portion of your raise to that charity. Not only will it make you feel better but it will also help you make a difference in someone else’s life as well. This might be more beneficial and rewarding in the long run than doing something for yourself.