Getting the most out of a pay raise

Information verified correct on June 16th, 2017

Once upon a time, if you worked hard and performed well at work, you could expect an annual increase. Today, that is not always history. Among low incomes, budget cuts and the tightening of the market, many employers no longer offer generous annual salary increases. If the increases are transmitted, it is usually due to a promotion or a nominal increase in the cost of living.

Although you can not control whether you get a pay raise and how much you get, you can control what you do with the money. And if your salary increases are few and far between, you need to make the most of the climb.

Do not increase housing and car costs

If your home is too small for your family, or if your car is falling apart, a pay raise may be the answer to your prayers – the key to a larger home and perhaps a more reliable car. However, if your home and car are in great shape and currently meet the needs of your family, spending extra money to improve your life may not be the best move for your finances. A more expensive home payment or car payment are ongoing expenses that will increase your monthly budget and will cancel any increase you have received.

Use extra money to create a cushion for 3 to 6 months

If you have been struggling to build your savings account, take this extra money and start a savings account or money market. This is your chance to finally create a nest egg and an emergency cushion. Financial experts recommend a three-month cushion. The more you save, the better. With cash at the bank, it is much easier to deal with financial shocks, such as an auto repair, a home repair, medical costs and other unexpected expenses.

Paying Credit Card Debt

Do you know credit card debt that has been hanging out of your head for the past five years? Well, now may be your chance to bring down the balance. Instead of spending freshly available cash on clothing and electronics, use this money and pay off your credit card debt. If you have an extra $ 300 every month after taxes, you can realistically pay a credit card balance of $ 3,000 in about a year.

Increase your contributions 401 (k)

It is never too early to save for retirement. Maybe you were living paycheck before you paid and could not afford to participate in a 401 (k) employer sponsored plan. And if you participated, perhaps you could only contribute a small amount each month. With extra money in your pocket, you can finally give your retirement account the attention it deserves. Talk to your employer about enrollment, or visit a bank and open an individual retirement account.

Add the insurances you need

You know, without a doubt, the importance of insurance. But if you did not have much money, you may have skimped on major insurance, such as life insurance, renter’s insurance and health insurance. To make the most of your pay raise, use the additional income to buy life insurance that is right for you. If you currently do not have the best health insurance – or no health insurance – adding a policy can provide the peace of mind and medical care you need and deserve.

Phil Kirsten

As a writer for loansradar.com, Phil Kirsten specializes in personal finance, with her passion centring on helping people find better for whatever they're looking for.

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