A new job, a promotion, or even yearly merit reviews, can mean an increase in pay which can be an exciting step in your career, opening the door to new challenges and added responsibilities. There are many benefits that come with career growth, and the financial advantages are a plus. But before making any major purchases with your increased paycheck, it’s important to set intentions for how this money can be a reflection of your values and goals. Here are three considerations to keep in mind post-pay increase.
Prior to your promotion, you may have been stretched thin financially. Monthly expenses like rent, utilities, health and car insurance, and groceries can quickly add up, leaving little leeway for savings or other financial goals. While it can be a bit of an adjustment to suddenly have more financial flexibility, it’s also a wonderful opportunity to gain new momentum toward building up savings and empowering yourself in the process.
If you’ve already been budgeting carefully, continue to stick it, while skipping purchases that don’t align with your plan. With the new added income, it may be tempting to indulge in fun or nonessential items, which is fine on occasion. But to set yourself up for true financial stability, you’ll want to establish a plan for where this money is going.
Determine how much of your monthly salary you aren’t putting toward essential costs, and aim to put most of the money from the raise toward savings. By choosing to allocate a certain percentage of your new income toward your savings, over time you’ll build a financial cushion that you can rely on for emergencies, educational pursuits, home ownership or other important costs.
Now that you have more income, you have the opportunity to take new approach to old spending patterns that may no longer serve you. For example, if you’re a frequent shopper but buy fast fashion or inexpensive items that aren’t designed to last, now is the perfect time to reevaluate what’s really a sensible purchase. Try to invest in high quality items that you’ll use for years. Mindless spending can make a dent in your wallet, and bringing more awareness to your habits will allow you to reduce unnecessary purchases and grow your wealth.
If you weren’t able to tackle debt in the past (whether it’s student loans, credit card costs or other repayments) now is a good time to start. Depending on the amounts you owe, eliminating debt won’t necessarily happen overnight, but creating a steady plan will gradually bring you closer to being debt free. When it comes to choosing a strategy, start by prioritizing paying off debts with high balances or high interest rates. Find the right debt management technique for you.
Once you have a sense of stability with your day-to-day expenses and are able to comfortably pay for essentials without overspending on unnecessary purchases, you’ll want to reflect on your values and goals. In the past, you may not have been able to contribute toward funds for vacation, retirement, home renovation, charitable giving or other personal objectives.
Now that you have the means to do so, decide what is most important. Making a list of your top three long-term financial goals and contributing to each accordingly is a great way to get started. If one goal is more time-sensitive than another, you may want to put a larger percentage of income in that bucket, knowing you’ll have more time to contribute to your other funds over time.
New to budgeting? We’re here to help! Create a monthly plan that works for you with these three steps.