9 Smart Ways To Make the Most of Your New Raise

You just left a meeting with your boss with great news: you got a raise! Maybe now you can splurge on a nice meal for the family or finally buy that new gadget you were eyeing.

However, there are other ways to manage your pay bump. Here are 10 ways to get ahead financially with your new raise, whether large or small.

Small raises usually amount to around 3%. They may be performance raises or annual raises that come with tenure in the company.

Any raise, even a small one, is exciting, and people tend to get caught up in their emotions and spend their money very quickly.

With small raises, you must use the money you receive wisely.

One of the first things you should do with a small pay raise is pay off any outstanding debt.

Debt could look like student loans or credit card payments. You may not be able to pay off your debt in full. If that’s the case, it might be a good idea to use your raise to increase your monthly payments.

Maybe you’ve heard the term “lifestyle creep” thrown around online or in conversation with peers.

Lifestyle creep is when your spending increases with a higher salary — and savings decrease due to your more expensive lifestyle.

Often, when people receive a raise, they want to purchase expensive goods they’ve been eyeing right away. Be aware of lifestyle creep, and you closely monitor your financial choices.

You can start up or contribute to an emergency fund with your raise. Emergency funds are used for unexpected expenses, such as medical bills or car repairs.

Having money tucked away only for emergencies can give you a sense of security and peace of mind.

Using your raise to put money into an emergency fund is definitely a financially savvy way to utilize your pay bump.

A little extra income might just be the capital you need to start a side hustle. Maybe it’s an interest you have, like pottery or art. Or you want to finally purchase some camera equipment and get paid for your photography.

Sometimes, all we need is a financial push to pursue making money from our passions.

One of the best things you can do for yourself upon receiving a raise is to reinvest in yourself however you see fit.

Take a portion of your raise and go out to dinner, see a movie, or buy tickets to a concert. You can give back to your local charity.

Feel comfortable sharing your accomplishments with yourself, your loved ones, and your community.

Larger raises could come in the form of a promotion, a transition to a new field, or a bump in pay in your current role.

With larger raises, it’s important to consider that you might need to make bigger decisions and changes to your finances.

When you receive a larger raise, there may be some drastic changes to your bank accounts.

A large raise may even put you in a different tax bracket. If so, it’s advised to meet with a tax professional who can help you navigate your taxes come April. A financial advisor may also help you navigate your newfound funds.

It is important to ensure that you pay off debt before saving, as debt, especially credit card debt, accrues interest over time.

Once you eliminate your debt, start to increase your savings. With a large pay raise, you may want to consider saving for hefty purchases such as a vehicle or a down payment on a house.

Putting more money into retirement is a future investment and one that will have positive benefits years down the line. It may not seem like a fun way to use your raise, but it’s one that you’ll thank yourself later for.

If your current company does 401(k) matching, it might be a good idea to increase your monthly payments into your retirement account with your increased salary.

With a larger pay raise, investing is an option that may lead to building wealth.

To grow your money, consider investing in various things, such as property, stocks, and bonds. Diversifying your portfolio with your large pay bump will give you many options to fall back on in case something happens to one of your investments.

The most exciting part of a raise should be enjoying your increased income — but it also allows you to reevaluate your future and manage your money accordingly.

Take care of your present and future financial needs with your raise, and you may be one step closer to creating the life you want.