For most people, the start of the year means a new budget for your employer, and most employers hand out annual salary increases.
Whether you receive a small bump or a large increase, it’s certainly a good feeling to have more money in your pocket.
Before you go and spend all that extra cash, you’ll want to make sure you are making wise financial decisions with your new rate of pay.
Here are a few smart things to do with your pay raise this year.
1) Pay Off Debt
Obviously, if you have debt to pay off, then this is a great use of your pay raise. Particularly, consumer debt from vehicle loans and credit card debt can grow quickly due to their notoriously high interest rate. By paying down these loans with your pay raise, you can save on interest, and more quickly pay back what you owe.
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2) Increase your Retirement Contributions
Investing in your future is always a smart bet. You can never have too much money saved for retirement.
You can easily increase your retirement contributions by upping the amount of your paycheck you have deducted into a 401(k) or Roth 401(k). Not only does this help save for your future, but it’s also a smart move to make to save on taxes.
3) Save for a Rainy Day
No matter who you are, you are vulnerable for bad things happening to you. This may not seem like the most optimistic point of view, but it’s true. Whether you experience a job layoff, a broken down car, or an unexpected tax bill, any of these emergency situations could ruin you financially if you aren’t prepared.
But the good news is, you can protect yourself by starting an emergency fund. Many money experts suggest saving 3 to 6 months of living expenses. If that number seems like a lot to you, then just start small! Even just $500 can be a lifesaver in the most dire of situations.
4) Give It Away
If you support an organization that is close to you, then you may opt to up your charitable contributions with your pay increase. Giving back is one of the most selfless things you can do with your money, making it one good option for your newly earned cash.
5) Reach your Savings Goals
Saving for a house? A family vacation? A vehicle? Whatever your savings goals are, you can reach them faster by using your pay increase to up your savings rate.
Before you’re tempted to spend your pay increase, you can set up an automatic savings account. With most online savings accounts, you can set up an automatic savings plan, making it super easy to save. What could be better?
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6) Invest in your Career
Would a certification, class, or seminar help further your career? If your company doesn’t pay for such opportunities, then you may have to pay for it out of your own pocket. Reinvesting your pay increase back into your career is a great way to advance. Before you sign up, consider how such a class will help you grow in your career and your income.
7) Start a Side Hustle
Not every side hustle requires capital up front, but some do. If you’re looking to create your own product, business, or something else, you may need extra money to invest in equipment, supplies, software, and other tools.
This is a great use of your pay increase, as you have the opportunity to earn your cash back once your side hustle takes off. And who knows? Maybe your side hustle can grow big enough to become a full-time gig.
8) Splurge (a little)
There are an endless number of ways to responsibly use your pay increase. But there is no harm in spending a little bit of that money on yourself, either. You worked hard for that increase, so don’t hesitate to reward yourself!
Did you receive a pay increase this year? How did you spend it? What other smart ways could you spend your pay increase?
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I got a small raise at the beginning of the year. That money is being used to eliminate my credit card debt. If all goes well, it will be gone before FInCon.