Have you been praying for a raise and have finally gotten it? You are probably quite excited about it. Being rewarded for our efforts is something we all look forward to, but a raise can sometimes be like a double-edged sword. Though you look forward to making more money each month, getting a raise can make you develop some poor financial habits.
For you to enjoy the raise, you need to start making the right choices before the next paycheck so that you can avoid spending it all on things that you don’t necessarily need. Making the right decisions can also prevent you from feeling anxious about your spending habits. It gives you control over every penny you receive each month. You need to start making proper plans as you think about what to do with the raise. The steps below should guide you as soon as you start receiving the raise.
Wait for some few weeks before withdrawing your salary
An increase in income comes with an increase in tax payments. You should, therefore, expect to see some changes in regards to how much you pay the government every month. If you cannot make the calculations that show you what you will be paying as the new tax, consider waiting a few weeks before you withdraw your new income from your bank account. This can help you assess how much you get to keep and how much goes towards tax payments.
Reassess your initial budget
Before you start allocating the funds to cater to different needs, go through the budget you have been working with one more time, and determine if you need to make some necessary changes. If you don’t already have an existing budget, start with jotting down all outgoing expenses as you factor in all your bills and monthly purchases. Go through your credit card statements so that you can get an accurate figure of how much you have been spending every month.
Compare this figure with what your new income reflects and think about where your raise should go. For instance, you can decide to save it in your investment account or retirement fund if you are not struggling to pay any of your expenses. Alternatively, use some of the funds from your raise to boost your emergency fund. If you lack the discipline to take such actions, consider automation. This can help you grow your wealth and prevent you from wasting money.
Avoid adjusting your lifestyle
There is always the temptation to move to a higher class once you start receiving a raise. Experts, however, reveal that adjusting your lifestyle when you start getting a higher income can hinder you from building wealth. Instead of enhancing your standards of living, try to maintain the same lifestyle, and take the raise as an opportunity to grow your wealth.
Saving and investing, rather than adjusting your lifestyle, can help you gain financial freedom faster. If you want to retire a rich person, you have to learn how to live below your means. For you to achieve this, ensure that you take advantage of discounts and compare prices of things so that you can avoid spending more. Consider sharing extra living space with a friend who can help you pay bills rather than living in a big sized house alone. The secret lies in saving as much as you can and staying humble regardless of how fat your new check may be.
Pay off your debts
Do you have a personal loan from Cashfloat that you are yet to pay? Though the direct lender may have given you a few years to settle your payment, getting a salary raise can help you clear the debt earlier. When you prioritize clearing all your debts, you waste less cash on paying high-interest costs. It also gives you the chance to boost your credit score.
Clearing your debts, therefore, gives you more gratification than wasting your raise on a shopping spree. It also reduces stress levels and gives you a better financial picture. You can start by paying small loans first then proceed with the big loans.
Consider giving to charity
If you were not involved in charitable donations before, you should start considering this now that you will be receiving a higher income. Apart from it being a nice gesture, giving back to the less fortunate can help you minimize the burden on your new tax. Donations to most of the charitable organizations are deductible. When you set aside a certain percentage of your new salary towards charitable contributions, you minimize the negative impact of credits and decreased tax deductions. Giving back to society can also give you a sense of purpose.
Take some time to celebrate your wins without necessarily spending your raise. It is possible to celebrate your raise in such a way that you honor your hard work constructively. If, for instance, you have a busy lifestyle, you can reward yourself with a gift of time by spending a day hiking rather than shopping. If you have to spend some cash to reward yourself, ensure that you set a limit on how much you should spend during your treat. You should avoid rewarding yourself immediately you get the raise since, at this moment; there is a tendency to develop diverse impulse purchase ideas.
Plan the next move on your career
When your boss appreciates you for the good work you have been doing, it should be an indicator of your career growth. Since you are considered a valuable employee, you should start to think about your next progression. Come up with a plan of how you can enhance your career by, for instance, developing your skill set. You can use some of your money to pay for evening classes so that you can set yourself up for better opportunities in the future. Be open to networking with more successful people so that you always learn new things from them.