Getting a raise is an exciting moment for anyone. It recognizes your hard work and dedication in the workplace, and it often comes with more money to do the things you want. But people make some common mistakes when they get a raise. Money can quickly be wasted if it isn’t managed properly, leaving people overwhelmed with their finances.
1. Not Investing in Your Career
One mistake people often make is using the raise to cover additional costs in their life, such as a higher mortgage payment or credit card bills. While being responsible with your finances is important, you should also consider how you can use the raise to benefit your career.
Set Yourself Up for Success
Investing in your career is an important way to use a raise. By taking steps to improve your skills and grow your network, you can set yourself up for success in the future.
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2. Not Saving for Retirement
Like most people, when you get a raise, your first instinct is to spend it. After all, you’ve been making do with what you have for so long, and now you finally have some extra money to work with. But before you go on a spending spree, consider this: now is the time to start saving for retirement.
Start Saving Now
Whichever method you choose, the important thing is to start saving now. Even if it’s just a small amount each month, that money will add up over time and make a big difference. So next time you get a raise, resist the urge to spend it all and put some away for your future self.
3. Not Paying Off Debt
If you have any outstanding debt, now is the time to pay it off. Use your raise to make a dent in your credit card balance or student loans, and you’ll save money on interest in the long run.
Invest In Yourself
Use some of your raise to invest in yourself – whether taking a class to learn new skills or investing in some new clothes for work. You’re worth it!
4. Upgrading Your Living Arrangement
It can be tempting to want to upgrade your living situation when you get a raise. Making 5% more means you can move to a bigger apartment that costs 5% more, right? Wrong.
Save For a Down Payment Instead
Instead, funnel that money into a savings account for a down payment for a house. It might not give you the short-term gratification, but you’ll thank yourself long-term when you’re living in a nice house instead of a slightly larger apartment.
5. Not Asking for a Raise
There are a lot of money mistakes people make when they get a raise, but one of the biggest is not asking for a raise. If you don’t ask for a raise, you’re leaving money on the table that could be used to improve your financial situation.
Don’t Leave Money on the Table
Bottom line: if you receive a raise, make sure to also ask for a corresponding increase in salary. Don’t leave money on the table – use it to improve your financial situation and further your career goals.
6. Forgetting About the Trade-Offs That Come With a Raise
If you’re like most people, when you get a raise, you first think about how you can spend that extra money. But it’s important to remember that a raise also comes with some trade-offs.
Think Long-Term
For one, your taxes will go up. That means less money in your pocket each month. And if you’re careless more than you make and getting into debt. Another trade-off is that a higher salary often comes with more responsibility. You may be expected to work longer hours or take on additional projects. So before you start spending your raise, make sure you understand all the trade-offs that come with it.
7. Splurging Because You “Have the Money”
Suppose you’ve recently received a raise at work; congratulations! A pay increase is an exciting event that can bring a lot of financial relief and help you reach your long-term financial goals faster. However, it’s important to be mindful of how you use this extra money.
Avoid Unnecessary Purchases
Many people need to avoid blowing their raise on unnecessary purchases or using it to increase their lifestyle instead of investing it wisely.
8. Spending Your Raise Immediately
Suppose you’ve recently gotten a raise at work; congratulations! That extra money can give you some much-needed financial breathing room. But before you start spending that raise willy-nilly, make sure you avoid these common mistakes people make.
Adjust Your Budget
One mistake people often make is failing to adjust their budget. Another mistake is using your raise to buy luxuries instead of investing in your future. Finally, remember to plan for taxes.
9. Assuming the Pay Raises Will Keep Coming
Like most people, when you get a raise, your first instinct is to spend it. After all, you’ve been living on your old salary for a while, and you deserve a little treat, right? Wrong. The mistake is you are assuming that the pay raises will keep coming.
Don’t Make Assumptions
You may be in for a rude awakening if you rely on raises to keep up with your lifestyle.
10. Giving Yourself a Raise
That extra money can mean big things for your financial future. But before you start spending that money, you should do a few things first.
Make Sure Your Spending Aligns With Your Goals
For starters, you should take a close look at your budget and make sure that your spending aligns with your goals. Even if you have more money coming in, you should still spend more. In fact, now is the perfect time to make sure that you’re staying on track with your financial goals.
11. Neglecting Your Emergency Fund
Getting a raise is exciting, but make sure you’re being prudent about where the money is going. Make sure your emergency fund is getting the same amount of love as the shopping section of your budget.
Account for the Salary Jump
If your salary increases, so will the amount of money you need to save. Your taxes will increase, and if you plan on upgrading any other part of your lifestyle, like a house or a car, you’ll need extra savings to help cover that.
12. Adjusting Your Taxes
If your raise is large enough, you may go up a whole tax bracket. You’ll need to take a look at your withholding to make sure you’re saving enough every month.
Avoid a Large Tax Bill
The last thing you want is a giant tax bill because you failed to take your new income into account throughout the year and were underpaid.
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