Top Five Ways To Make the Most of Your Raise

Congratulations! You’ve been a stellar employee and now you’re being rewarded with a promotion and a raise. But after working so hard for the extra money, you might as well make the extra money work for you. Here’s a few tips to get you going, whether this is your first raise or your tenth:

1. Don’t adjust your standard of living. While it may be tempting to trade in your beater for a new car or upgrade to a bigger apartment, hold off as long as you can. The longer you can maintain your cheaper standard of living, the more money you’ll have every month without changing a thing.
2. Tweak your budget. Just because you’re making more doesn’t mean you need to spend more, too. Line items like groceries, utilities, and health insurance shouldn’t go up, but you may need to check yourself when it comes to discretionary purchases like entertainment, shopping, and travel. Money is like a sponge: It tends to fill the space it’s given, so keep the reins tight on your spending.
3. Bump up your retirement allocation. Before you get used to seeing the extra moolah in your paycheck, increase the amount you put aside in a company 401(k) or IRA. Out of sight, out of mind — and out-of-the-ballpark returns in the long run.
4. Pay down debt faster. The temptation exists to give yourself a big, splurge-y reward for your success, but if you have high-interest debt (like on your credit cards), the smartest thing you can do is pay down the balances. Consider it an investment in your future.
5. Start a short-term savings fund. Let’s revisit that new car or nicer place. With a little more flexibility in your budget, you’re now better equipped to start saving up for a big purchase. Check with your banking institution to see if you can enroll in an automatic savings program to make it even easier.