You asked for and got that pay raise, but before you do anything – here are some important things you should consider doing with that extra money!
With America currently experiencing economic boom times, unemployment is historically low. For the first time in over a half-century, there are more jobs than there are available workers. In fact, about 1 million more. Many workers are jumping ship to higher-paying jobs. This situation is forcing employers to pay more to retain good employees. As a result, more employees are asking for and receiving pay raises.
Many workers are finding themselves with a little more cash in their pocket. However, it’s easy to run out and spend that extra money right away. Before you do, let’s look at some things you may not want to do with that money, as well as, some of the best ideas for what to do with your additional income.
While the possibilities could be endless for what you could do with the extra money you are receiving from your pay raise – let’s start with what not to do.
The most common mistake people get when they start making more money – is to spend more money. They start thinking about what extra they can have in their life with that extra money. They might buy new things for their house, get a new car or take on additional revolving payments, increasing their debt. But here’s the thing… You often lose the advantage that a pay raise gives you when you increase your spending. When you do that, you can still wind up with more month at the end of the money!
The extra money from your pay raise can help you fix some problems you may have had in your life before your income went up. There are some expenses that are necessary. For example, maybe you were struggling with a substandard car and now you can afford something more reliable. That kind of expense makes sense, because you’ll probably save money in the long run with fewer repairs. But in many cases, people don’t take the best advantage of increase in size of their paycheck and put that extra money to work.
Here are some ideas for the best thing to do with the extra money gained from a pay raise:
If you were able to live on the amount of money you were getting before your pay raise, then it stands to reason – some of the extra money you receive through your pay raise could be funneled into your savings. This prepares you from unseen emergencies that might otherwise cause you to rack up more debt. Plus, it’s always wise to have enough money in savings to sustain you for 6 months minimum (a year is better) if you were to lose your job or couldn’t work.
Most people do not put away enough money for retirement. Some of the extra money you receive through your pay raise could be funneled into your retirement savings.
You can use the extra money you are now receiving to earn you extra money through interest. If you are new to investing, you can play it safe with Certificates of Deposit (CDs) or Treasury Bills (T-bills). These are no-risk investments because they are government-backed. These can also be made as short-term investments so that you don’t tie your money up too long.