Asking for more money from your employer is something many people struggle with. But even after you muster up the strength to prove your worth, ask, and land the raise you deserve, doing something valuable with that new income is an even more important step.
I remember my first corporate raise very well. And I remember how uncomfortable it was to step outside of my comfort zone and pitch my boss on how the increase in value I brought to the company should trickle down into my salary. I also remember being told that I was, in fact, worth a higher salary and a bonus. But I also remember the willpower it took to push those funds out of my mind until they were actually sitting in my bank account. Afterall, spending that money before it hits your bank account is setting yourself up for bad news.
Even though I was comfortable with my budget before the raise, I knew I could loosen the belt a little now that I had more money coming in. I started thinking about what I would change: Would I increase my monthly savings contributions? Contribute more to my 401(k)? Put more money toward my student loan payments? Really though, I just wanted to increase my monthly spending allowance.
While getting a raise can be pretty exhilarating, it will still impact your financial plan, whether you’re severely stressed out over your finances or completely comfortable with your income and expenses. So, let’s go over the steps needed to put those funds to work!
Step 1. Do nothing.
No, seriously. Completely ignore the thoughts about your increased income. You can pat yourself on the back, because I’m sure you earned it, but those funds aren’t available quite yet, so don’t even consider spending them. Keep going about your life on your current budget until you are in possession of the cash.
Step 2. Do the math.
Once you have the funds in your possession, calculate the difference between your old income and your new one. Taxes have a funny way of leaving us with a little less net income than we had estimated in our heads. If you expect the raise to put you into a higher tax bracket, you might want to proactively skim some into automatic savings, in case you’ll owe this to the IRS later. After that, the figure you are left with is what you have to play with when it comes time to reassess your financial plan and budget.
Step 3. Check your plan.
Revisit your financial plan and goals. Ask yourself a few questions: Is your current budget working for you or are you spending outside of it? Even if you’re managing to keep within your budget, are you constantly stressing about any part of it? If you are miserable and feeling deprived, it is perfectly fine to allow yourself some extra spending money. If you restrict too much, you might impulsively splurge on something down the road and bust your budget.
If you are comfortable with the spending allowance in your budget, which financial goal is the most important to you? Which goal would you like to reach the fastest? Ask yourself if putting more money toward reaching that goal faster will feel more rewarding than a new wardrobe.
You can also work through this with your financial coach or planner, if you have one. Another pair of eyes and ears can be an excellent resource.
Step 4. Put the plan into action.
Take action and reallocate your funds. If your goal is to increase your 401(k) contributions, login to your account and make the change before those funds hit your checking account. If you need to increase your grocery budget $100 per month, adjust the budgeting app in your phone accordingly. If you are going to use the additional funds to pay for a vacation, set up that savings fund
Step 5. Go about your business.
Once that’s taken care of, it’s time to get back to living your life as normal. You should have revised your financial plan so it is automated and you don’t have to think about it too much. It might take a few months to get used to the revisions, but leave it alone. As long as you know where the new funds are going, you will soon see the rewarding effects of the raise.
Congratulations are always in order for a raise. Your employer (or clients, if you gave yourself a raise) are essentially saying you are worth more than you were previously and should be compensated accordingly. But now it’s time to get back to work. Make sure your financial plan is making the best use of your money. As long as you keep that plan in action, you won’t be left wondering where all your new money went later on.
Michelle Bobrow is a member of the DailyWorth Connect program. Read more about the program here.