iQuanti: Getting a raise is a fantastic feeling. You're being rewarded for all the time and effort you've put in. And it's certainly a time to celebrate! But when many people actually see the money in their next paycheck, they're not quite sure what to do. And when you don't have a plan for your money, it's going to find a home that's not intentional.
Here's what to do after you get a raise to make the most of your hard-earned money.
Calculate Your Pay Raise
You may be so excited by receiving a raise that you want to immediately start spending the money. But it's essential to take a breath, and maybe a few weeks, to start seeing the raise in your paychecks first. That's because when it's said and done, the big raise you got might not make that much of an impact on your bottom line.
For example, maybe yesterday, your boss thanked you for your hard work and indicated you'd be getting a 3% raise this year. If you make $50,000 a year, a 3% raise equals a new salary of $51,500. So if you get paid 24 times per year, that's a pre-tax raise of $62.50 a paycheck. However, after taxes, you might only be seeing about $30 extra bucks a pay period.
That's why it's critical to calculate your pay raise or take a wait-and-see approach before you make big financial plans. An extra $30 per paycheck is great, but it might mean the difference in deciding to up your credit card payments instead of buying that new TV.
Get Your Insurance Coverage in Order
A common excuse for those living without solid medical, disability or life insurance is that it's too expensive. But buying insurance can't wait until it's too late.
Buying medical and disability insurance can keep you financially solvent even if your ability to do your job is disrupted, while the right life insurance policy will protect your loved ones financially if something happens to you. That places it securely in the category of needs, not wants.
Of course, you may also be wondering, "How much life insurance do I need?" And while there's no magic number that works for everyone, the general recommendation is to buy a policy that would pay 10 times your income.
By shopping for life insurance after a raise, you'll be sure your policy is covering your new income. Plus, the cost of a term life insurance policy is often more affordable than you might expect, and putting your new pay bump towards your family's peace of mind is invaluable.
Build Your Emergency Fund
An emergency fund is intended to protect you from needing to take on debt when life throws you an unexpected curveball.
The general recommendation for the size of an emergency fund is 3-6 months of living expenses. So if you're not yet comfortable with the size of your emergency reserves, seize the opportunity to use the extra money to build them up. Even adding $50 a month can mean hundreds of dollars more in your emergency fund each year.
Increase Your Retirement Contributions
If you haven't signed up for your employer-sponsored retirement plan, or if you've only been contributing to get the match, a raise is a great time to up your contribution amount. The major perk of upping retirement contributions is that if your plan is pre-tax, you'll get a much bigger bang for your buck. So instead of seeing $30 more in your paycheck, you could put the whole 3% increase towards your 401(k).
The Bottom Line
When you receive a raise, it's important to acknowledge the hard work that got you there. But it's not always the best choice to buy yourself a big reward. Instead, look at options like buying life insurance, building your emergency fund, or increasing retirement contributions. These aren't the most glamorous purchases you'll ever make, but they'll certainly have a more significant impact on your financial bottom line.
Press Release Service by Newswire.com
Original Source: You Got a Raise! Now What?
