Congratulations! Getting recognized for the great work you’ve been putting in is a reason to celebrate. That increased monthly income means you’ll have more to spend on goals now, and for the future. That makes this a great time to look at what’s most important to you and make sure you’re using your extra funds of that. Taking smart steps to plan your finances can help you get you closer to your financial goals. Here’s are a few things to think about, soon after your raise is finalized.
1. Review your tax obligations
Before you make any big plans for your new income, you may want to figure out what your net pay – after taxes, benefits, and other payroll deductions – is. If your raise pushes you into a new tax bracket, you may want to speak to a tax professional about how to plan for the future. A pay hike doesn’t always mean that you will pay a ton more in taxes but knowing your new take-home amount can help you plan better and stay prepared for when that first new paycheck arrives.
2. Repay your debts
If you’re sitting on high-interest debt like credit card debt or a personal loan, a salary bump may be an opportunity to start paying it off more aggressively. Not only will you work toward eliminating the debt itself, but you may also improve your credit score and debt-to-income ratio in the process. Lower-interest debt such as student loans can be important too – increasing your loan payment by a small amount may help you chip away at the debt much faster.
3. Revisit your budget
This may be a good time to review your existing budget to examine your monthly spending and determine where that new raise can work the hardest. For example, if you have been going over in a certain area that’s important to you, maybe up your budget to match your spending.
4. Add to your emergency fund
If you don’t have an emergency fund, then your raise may be a good opportunity to start one. Emergency funds can differ widely from person to person, but a good general rule is to have six months’ worth of expenses set aside in case anything unexpected happens. If you’re not quite there, that’s ok. Now is a good time to start working to get your emergency fund fully stocked.
5. Plan ahead
Envision your long-term uses for the money. This can help you plan investments and choose financial products. Want to have more when you retire? A raise may be a good time to increase your contributions to your Individual Retirement Account (IRA) or 401(k). Want to make sure your dependents are well-provided for after you pass? You may want to turn your raise into premiums for universal life insurance. Looking to build up your emergency fund or save for a vacation? It may be a good idea to look for a high-yield savings account to help your money grow until it’s time to use it.
There’s a lot you can do to make your money work hard for you – a big raise can be an opportunity to plan ahead, evaluate your budget, pay off existing debt, and more. Remember, it’s also important to treat yourself, too! The key is to plan for that vacation or expensive new phone – so you enjoy your money now while planning for the future.
Source: iQuanti