4 Things to Do When You Get a Raise

by | Jan 30, 2023 | Blog

When you get a raise, you get a golden opportunity to improve your finances.  Earning more income doesn’t happen very often throughout the course of your career. But increasing your income is the single best thing you can do to improve your financial position. The opportunity only exists if you get a raise AND keep your life expenses the same.

It can be very tempting to “keep up with the joneses” and spend the extra money you make each month. That might temporarily feel better, but you wouldn’t actually be any better off than before you got a raise.

Coming into new money and earning more than you ever have before can be overwhelming. And you might not know where to begin.

In this blog post, we’re going to cover 4 things to do when you get a raise.

1. Review Your Monthly Numbers

Now that you are making more money, you may be tempted to never look at your budget again. But this might be the best review of your finances you ever do! Usually people only review their finances when they’re making big decisions, or when they are barely making ends meet. But when you review them after getting a raise, it’ll be a nice validating exercise of all your hard work.

Adjust your line items to match any new priorities without going overboard. Reviewing how much surplus cash flow you now have will allow you to re-prioritize your dollars.

2. Pay Yourself First

This is the most important phrase in personal finance. And after doing the best personal finance hack out there, getting a raise, make the most of it by paying yourself first.

If you were already saving money, you should consider adding a percentage of your raise to that savings amount. 10-20% of your pre-tax income is a good personal savings goal to strive for.

Where you are saving that money is important as well. If you already have 3-6 months of expenses saved in your emergency fund, then you can move on to intermediate and long-term goals. A high-yield savings account, Roth IRA, or brokerage account are good places for intermediate term goals. A 401(k), IRA, or any other type of retirement account would be a good savings vehicle for long-term goals. Just make sure not to overcommit dollars to longer term goals.

Life is full of the unexpected. Plan for it by paying yourself first and having enough liquid cash on hand to give yourself peace of mind.

3. Tackle High-Interest Debt

Not all debt is bad, as much of it helps you both financially and in terms of your quality of life. But certain types of debt, like credit cards and personal loans, usually have high-interest rates that you don’t want to carry around forever. Eliminating, or significantly paying down your high-interest debt is a great way to utilize your dollars after you get a raise.

By getting rid of debt, you free up dollars to be better used for other things. And, if it helps, think of it as investing your money at whatever high-interest rate you are paying. If your credit card has a 15% interest rate that you no longer have to pay, that is a 15% rate of return on the dollars “invested” into the debt.

4. Adjust Your Tax Withholding

After you get a raise, you’ll want to adjust your tax withholding. Earning more money unfortunately means you’ll have to pay more in taxes. But if you don’t adjust your tax withholding, you might end up owing more money come tax time. Be sure to determine if your raise will bump you up into the next tax bracket.

Increased Peace of Mind Moving Forward

The benefits of improving your finances significantly outweigh the short-term excitement you’ll get from spending that money. That doesn’t mean you can’t spend a portion of your raise on something fun that you’ll enjoy. But lifestyle creep is real. And raising your expenses to permanently match your new income is not recommended.

Keeping your expenses about the same after you get a raise is one of the biggest and best financial opportunities you’ll ever have. If you do these 4 things, it will surely pay off in the long run!

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