What to do When You Earn a Pay Raise
At the end of last week I was called in to my VP’s office, just before the end of the day, for “2 quick minutes.” I knew I wasn’t in trouble but I couldn’t help but feel a little bit nervous. My 6-month evaluation had already passed and I hadn’t ruined any major projects. I was a little apprehensive, wondering what she wanted to talk about, but I tried to walk in there with confidence. After I walked in, closed the door, and sat down, she looked at me and told me that she had submitted me for a pay raise and had received the approval from our COO so I would see it reflected on my next paycheck. She then told me how much she appreciated my hard work and we discussed a few of my current projects.
I walked out of her office with a smile on my face, excited to get home and tell my husband the great news!
As soon as I did we sat down to have a discussion…
What do we do with the extra income?
For us, it was an easy decision.
At the beginning of this year we set a savings goal for ourselves. A target amount that we wanted to see in our savings account by the end of the year. Since we were already living comfortably on our existing budget we decided to live like this pay raise didn’t happen. I modified my direct deposit information at work to have the pay increase direct deposited to our savings account so that our checking account continues to show the pre-raise amount. By our calculations we will hit our savings target about 3-4 months ahead of schedule. That is amazing! Of course, you don’t have to be savers like we are (although it’s a great idea!).
Here are 3 other smart things you could do with that unexpected extra income:
Pay Off Debt
Are you still hanging on to student loans? Have you racked up credit card debt? Holding on to a mortgage or a car loan? Retool your budget and allocate the boost in salary toward paying down (and ultimately off your debt). Not only will you pay off your debt but you’ll see your credit score rise and, when it’s all paid off, you’ll feel an amazing sense of relief.
Add to Retirement
Have you started your retirement plan yet? If not, you should. You should start saving for retirement as early as possible. I started my first retirement Roth IRA when I was 22. It didn’t have much in it when I was 22 but by adding to it when I could it’s really boosted up to a decent account. Since I’m still decades away from retirement (ouch!) I have time to continue to build it up so it will be there for me when I need it. Even if you only add 1% or 2% of your raise to your retirement accounts you’ll thank yourself for it later.
Increase Charity Donations
Right now my husband and I support three charities – Room to Read, Charity: Water, and World Concern. They are all worldwide charities with amazing missions. I am proud to be a supporter of each of these organizations and we are called to count our blessings and give back where, and when, we can. Even if you only allocate 1% of your pay raise to charitable actions and donations it’s 1% more than you were giving, and they were receiving, before.
- What would you do with your pay raise?
- What do you consider a wise financial investment?
- Are there any particular charities you support?