If you’ve just received a well-deserved raise, congratulations! Now that you have more cash coming in, you’ll undoubtedly have a little more to spend. But not so fast.
Earning more money can (and should) help you build a more financially stable future, move closer to your grandest goals, and set aside money for retirement. Unfortunately, those best-laid plans can easily go up in smoke if we’re not careful. So if you’re suddenly making more money than you were yesterday, now’s the time to pace yourself.
With more money coming in, the temptation to spend more can be pretty compelling, and now you may feel like you more easily can. But when it comes to your financial status, never forget about the bigger picture. Earning more money might make it easy to rationalize blowing some of it here and there, especially when you’re in the mood to splurge. But it’s not in your budget’s best interest, no matter its size.
With all of that said, don’t hesitate to treat yourself. You have absolutely earned it, and you should enjoy your success. Just don’t unwittingly become financially irresponsible. In other words, a “treat” that causes a financial strain is not really a treat at all. Remember, your financial responsibilities aren’t going anywhere. And you didn’t work hard for this raise just to wind up in the same place you started.
With your new money in hand, consider working towards bettering your budget, and that will always include more saving than spending. It also helps to be aware of the mistakes most commonly made. Don’t be distracted by your shiny, new salary. Instead, be mindful of a few things that could put a major dent in your financial growth and delay (or even derail) your goals.
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Spending Your “New” Money Like it’s “Extra” Money
As mentioned, it’s crucial to focus on the long-term after you’ve been given a pay bump. Sure, this new money may open the window for more fun and immediate spending, but saving for your financial future should still be the priority. Extra money should only be treated as “extra” after you’ve built a budget where all the musts have been taken care of first.
You have to put your financial priorities first. Your raise might give you more money to play with, but it’s wise to establish exactly how much is really extra. By doing so, you will also be able to ease into your new financial status. Sometimes, when we’re given more financial freedom too soon, we don’t know what to do with it. You have a chance to make your financial standing stronger, so make the most of it by understanding what you’re working with.
Sit down and do the math. Chances are, this is a great time to implement a new budgeting strategy. Or maybe you just want to adjust the budgeting plan that’s been working for you. If you’re looking for a way to incorporate the extra money with ease, you could opt for a plan that allows you to set aside an allotted amount just for extra spending each month.
This way, you won’t be able to rationalize spending more money than you really should because you’ll have a clear understanding of exactly what you can and can’t spend. In the process, you’ll likely be able to save more than you ever thought possible.
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You Aren’t Putting Any of It Back For Emergencies
If you’ve just received a raise, fun and fancy-free spending should not be your sole focus. I’m sure that much is obvious. However, other things are overlooked; like unforeseen costs. Since we can’t know what the future holds, find consistent ways to save right now.
Raise or no raise, it’s crucial to tend to your emergency fund. What shape is it in today? What is your goal? What will it take to reach it? When our income increases, padding the emergency fund is rarely the first instinct. To avoid this common oversight, make building it stronger than ever before a top priority.
Of all the cushions you could have, building a solid emergency safety net is always a wise idea. Your raise can help you work towards making your emergency savings account something you can fully rely on in a bind. With a little more money coming in and some self-discipline, you should be able to build it in no time.
Also, if you keep your emergency money in a shoe box or some other home hiding place, this might be a good time to upgrade your savings system. But no matter how you stash your emergency cash, you should not be without an emergency fund. If you haven’t started one yet, consider this a safety net you can now afford and apply your raise wisely. You can never be too prepared, after all.
You’re Not Investing
While you’ll undoubtedly want to put some of this money into your personal savings account, there’s another place it should probably go. And if you’re looking for a place to put some of the excess money that doesn’t go to necessities, it might be time to invest it.
When people start making more money, not investing at least a little of it is a common mistake that many make. With that said, simply saving that money is a financially savvy idea, and building the emergency fund is crucial. And you should prioritize your debts first. But when your debts are out of the way, don’t just put your money back. With savings accounts, that money is just sitting there. So do more with it.
Investing is the mark of true financial prowess. When given a raise, building your wealth is a crucial, and often overlooked, step in a budding financial journey. So instead of just saving those shiny new pennies for a rainy day, start growing those funds immediately and over time. Investing is a long-term process, so don’t expect instant results. Be prepared for the ebb and flow of stocks, and don’t buy into anything that promises to turn you into a millionaire overnight.
While patience is critical, the sooner you invest, the more of a chance you’ll be giving those funds to grow. When it’s time to retire, you’ll be grateful for this nest egg, and you’ll have your raise to thank for it.
You may not think you can afford to start investing just yet. But the truth is, anyone can do it with just a few bucks. There are tons of platforms designed with micro-investing in mind, allowing anyone to invest as little as $5. If you’re just getting started, look into apps like Stash, Acorn, and Robinhood. These forward-thinking services also offer invaluable tips and financial guidance for newbie investors.
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You’re Overspending And Living Beyond Your Means
Making more money should not automatically equate to being frivolous or upgrading everything. And yet, this seems to be the biggest mistake people make after getting a raise. The fact is, it’s alarmingly easy for anyone to do. Word to the wise, draw up a revised budget, diligently keep up with where your money goes, and don’t start spending more just because you’re making more.
This might seem like the first mistake we discussed: mistaking new money for “extra” money. However, this one goes a little deeper. You might find yourself less worried about what you spend because your budget has expanded to cushion financial blows. But financial hits (and emergencies) have a way of creeping up on us when we’re least prepared for it.
If you rationalize overspending more and find yourself budgeting less just because you’re raking in more dough, you are likely spending way more than you realize. One of these days, all of that overspending will inevitably catch up with you. And if you don’t want to wind up saying “where did all of my money go?,” you need to save more than you spend.
After a raise, many people start living beyond their means, often overlooking or ignoring where that money is better spent. But earning a raise doesn’t just mean you have more to spend. It also means you have more to save, invest, pay debts, and put towards long-term goals.
The importance of tending to your financial health should not be forgotten or put off for the sake of a spending spree. You might think you can afford a brand new car, but if you don’t actually need one and yours is working fine, ask yourself where that money is better spent or if it’s better off saved. And no matter how tempting it may be to overspend now, treat your raise as if it has no real bearing on what you can spend.
This exercise in restraint and frugality can pay off in some major ways. But if you blow all of your money simply because you have it in hand, might miss the chance to enjoy the fruits of your labor at their sweetest.
Read More: How to Stop Living Beyond Your Means