Gone are the days of yearly, automatic raises. If you were able to get a raise, you worked hard for it. And you don’t want that hard work to have been for nothing. We want to make sure you spend a raise wisely.
As the American economy edges closer to full employment and several cities and states have increased the minimum wage, workers are finally starting to get raises again. I hope you’re among them! And if you are, I’ll show you how to spend a raise wisely instead of blowing it.
Don’t Get Too Excited
Getting a raise is exciting, and you might suddenly start thinking of the things you will do with all that extra money. Hold up. How much extra money are we talking? It might not be as much as you thought in the end.
Your tax bracket may not go up, but the taxes taken out of your check are a percentage of your total pay, so when you get a raise, you will see that percentage increase. Wait for two or three pay cycles to see just how much extra money you’re getting.
Consider Your Tax Bracket
Your raise probably won’t bump you up a tax bracket, but it could. These are the tax brackets for 2016.
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This Stuff Goes Without Saying
Pay down debt if you have it, add to your emergency fund if it isn’t entirely funded, contribute to your retirement accounts if they aren’t maxed out. This is common sense stuff that you already know, so I don’t want to belabor it.
Far be it from me to tell you to deny yourself something. Particularly when you’ve been working hard enough to get a raise. But splurge sensibly, and no, that is not on oxymoron. If you’re going to spend some real money (and what that means will differ for each of us), you want to spend it on something that will last a long time and that you will use a lot.
Splurge on things like a good mattress (a third of your life and, at least, some portion of your sex life) are spent in bed. Or a really nice suit, one that you actually go to a tailor and get fitted for. Off the rack will be ruined for you for life! If you’re still using your ratty old Craig’s List couch, consider splurging on an upgrade.
The point is, don’t just rush out and buy a bunch of dumb crap that you won’t have in two years because suddenly there is some money burning a hole in your pocket.
Take A Class
Want to keep those raises coming? Use your increased salary to upgrade a skill that will help you in your career. Now, if it’s something, directly related to your job, your company should be paying for that.
But taking some classes in public speaking or negotiating can benefit you at your current job. If you aren’t entirely happy at your job, despite your raise, take some classes in networking or how to build a startup.
You can also just take some classes that you think would be fun. Fun things can improve you too! Take a cooking class, learn a new language, learn to blow glass. Maybe taking a fun class will lead you to a side hustle.
Have An Experience
There is evidence that spending money on experiences makes us happier than spending money on things. And it’s the anticipation of the experience that really increases that happiness. You’ve felt this before, looking forward to a concert or a vacation. And the memories of the event help to create happiness too. What kinds of things do you think back on? Vacations, time spent with friends and family, an afternoon at the beach. You don’t review your life and fondly remember that time you bought a new iPhone.
Take some of your newly earned money and plan a trip or a skydiving adventure, something you can plan and look forward to and remember long after it’s over.
Something You’ve Been Putting Off
Sorry, this one probably isn’t going to be much fun, it’s essential, though. Has there been something you’ve needed to do for awhile but haven’t had the money for? Something like dental work (dental insurance in this country is a joke), a new roof on your house, some major work on your car?
This kind of stuff is an excellent way to spend a raise. These things are kind of hard to save up for because, again, they aren’t much fun. It’s easier to deny yourself dinners out when that money is going towards a vacation. When it’s going for a roof on your house, it’s a little less motivating. But a roof on your house is more important than a vacation, and the money has to come from somewhere.
This is probably the best option. In most cases, a raise isn’t going to be a life-altering amount of money. Even if it is, you don’t want to go crazy upgrading every aspect of your lifestyle.
The amount of additional money you get from a raise won’t go a long way towards upgrading your lifestyle, but if you ignore it by allowing it to grow in your investment or retirement accounts, it will go a long way toward upgrading your life.
Get A Bigger Raise
We’ve talked about this before, but I think it bears repeating. The average raise is about 3%, again, not a life-changing amount. If you want a big jump in income, become a job jumper and do it every two years. Those who jump around that often will make 50% more over their lifetime compared to those who stayed at jobs longer.
Every bit of extra money you make, whether it’s from a raise or a side hustle, can improve your life if you use it the right way. Spend a raise wisely.