So, you’ve been given a raise. Congratulations!
As eager as you might be to go on a shopping spree, it’s important that you take a step back and plan how you’re going to allocate that extra money.
Many people use a raise for more wiggle room in their spending, or as an excuse to buy some shiny new toys.
But it’s important to think about creating a comfortable financial situation for yourself now and in the years to come.
1. Re-evaluate your spending habits
Now that you’re earning more money, it’s more important than ever to make wise spending choices.
Dig out your bank statements and check where you’re spending more than you should.
Take your mortgage, if you have been making routine payments for several years, you could be eligible for refinancing, meaning you would be able to reduce your interest rate and your monthly payments.
On a smaller scale, you can find ways to cut spending, such as bundling subscriptions into one lower price or choosing generic products.
The more you save each month, the more impactful your raise will be.
2. Adjust auto-savings
More money coming in does not call for a shopping spree. You need to be smart about using the extra money, and a wise way to do that is to put it into savings.
Since most employees receive direct deposits, they probably also have the option to set up auto-deposits into savings.
If you already have one, be sure to increase the amount after a raise to build up your emergency fund.
Experts recommend saving 20% of your income but there is no one-size-fits-all as everyone’s goals vary. Talk to a financial advisor to work out your financial goals and how much you can afford to save.
3. Increase your retirement contribution
Retirement is a major factor to consider when thinking about saving. Many companies will have programmes that allow you to dedicate a small percentage of your income to a retirement fund and some will match that to a certain degree.
Check with the company whether this option is available and, if not, there are individual retirement accounts that can be used. Either way, you should start preparing for retirement as early as possible.
Money saved over your years in the workforce can provide a comfortable life with few concerns about money in your later years.
4. Keep developing your professional skills
It may be hard at first glance to make the connection between improving your skills at work and money management, but becoming a better, more knowledgeable employee can improve the chances of getting another raise.
Your professional development is what got you that initial raise in the first place. If you do not try to prove yourself in the workplace, you won’t have access to opportunities for promotions and pay raises.
Find out which skills are the most sought after in your workplace to stand out among your co-workers and you will be making your way to the top of the ladder in no time.
It is important to set goals for yourself as soon as you receive your first raise so you do not waste your money.
Make sure you are allocating the extra money to funds that build wealth and set you up with a comfortable life down the road.
This article first appeared in jobstore.com.
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