Congratulations: you got a raise!
That’s the good news. The not-so-good news is that when it comes to getting a raise, some people do struggle with effectively managing the extra cash landing in their account.
Sure, you’re going to make more money. But that feeling of financial wellbeing can also easily lead to — if you’re not careful — some poor financial decision-making.
That’s why squaring away your finances as soon as you land a raise might result in better financial outcomes, less money stress, and ultimately greater money security.
With that in mind, here are some easy and painless personal finance hacks for when your boss speaks those magic words: pay rise.
Update your budget
Happy days — there’s more money landing in your account! Now for the tricky part: what to do with it. This is when having a budget is really important. So, if you don’t have a budget, start one. For those who do, we suggest you don’t just allocate money to new budget items or discretionary purchases without thinking about all your options first.
For instance, consider boosting up how much you spend on underfunded items in your budget, or better yet, think about paying down debt, putting the money into investments, or savings.
Stay money smart
When you’re making more money, it’s easy to spend more money. (This situation even has a name: lifestyle creep.) The point is: it’s a good idea to hold off on making big discretionary spends — think a new car, designer gear, or overseas holiday — until you’ve assessed how far your extra cash is actually going to stretch.
In practical terms, this means when your new pay lands in your account, you should try to stay fiscally responsible. Consider making payments towards fixed costs; payments such as mobile, internet, rent, insurance payments, memberships, and subscriptions should go out first.
Even better? Maybe set up automatic deductions timed to coincide with payday, so you don’t even have to think about making these payments yourself, if you haven’t already.
What about savings?
So, you’ve been scraping by paycheck to paycheck and now you have some more money.
If this sounds familiar, you could think about setting up a dedicated savings account, and having the extra money you’re making automatically deposited into it on pay day. You could ask your employer if they can do this or you can transfer it from your transaction account.
Consider an emergency fund
Another smart move to make with your newly-added cash could be to put funds away for a rainy day. The point of an emergency fund is all about preparing for worst case scenarios — because, as we all have discovered, you never know what is around the corner.
Once you’ve chosen to stash some emergency funds away, you should figure out how much you might want to have set aside. For instance, a transport issue such as a car smash might be something you could fund with emergency cash. Or, say, essential travel in the case of a serious injury to a friend or family; that’s another reason you may put money aside.
Remember to have fun
Financial security is important, but let’s not forget — getting a raise is great and is cause to celebrate. So, be sure to take the time to savour it.
Once you’ve made sure you’re still living within your means, do something for yourself. Go out to dinner with friends or family, plan a holiday, or buy something you’ve had your eyes on. It’s all part of acknowledging the achievement of being recognised at work and the new possibilities that a higher salary offers.