How to Manage Your Finances When You Get a Raise

woman with extra cash in her handsGetting a raise can change your finances forever. But before you start racking up credit card debt, you need to stop and think about it. Too many people enter the rat race by increasing their spending as their finances improve. Spending your working life like this is why so many retirees fear running out of money during their old age. Here’s how to manage that new income to improve your financial future.

How much do you really have?
Once you’re finished cheering and whooping about how much money you have, check to see how much you’re really getting. You might be surprised at how small that raise really is after taxes. Review your budget. Plug in the numbers and see how much more you have every month. You should consider how you can best use that money.

Do you need to pay your debts?
As a parent, you might want to save better for college. Luxuries should be the last thing on your list. Paying your creditors should come first. Paying your debts should be the priority because it’s like a stone around your neck. Make sure that the extra money focuses on freeing you of credit card debt and any other unnecessary expenses.

Do you contribute to a retirement fund?
Adding money to your retirement will not only help you prepare for the future, but it will protect more of your money from taxes. Remember that the money doesn’t have to go into a dedicated retirement plan. You can put it into a long-term investment fund, such as ETFs or tracker funds.

Consider a charitable donation.
One of the favorite tax avoidance methods of the rich is to make a charitable donation. This makes more of their money tax-exempt. But anyone can do this. Just keep track of the payments and deduct them from your taxes.

Have fun with your raise.
Once you’ve taken a look at your budget feel free to use the money to enjoy yourself. As long as you don’t cause any damage to your financial health there’s no reason why you can’t buy that new set of golf clubs or take that vacation.

Last word – manage raises well. Instead of spending everything you make, try to save toward the future. Concentrate on saving and making your money work for you, but don’t be afraid to have a little fun along the way.

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