3 Expert Tips for Making the Most of Your Raise or Bonus

Everyone loves a good bonus or raise—and we understand why! That extra income not only helps you feel rewarded at work but it also just makes life a little bit easier.

This can be a real boon to your financial stability.  If you manage it right, you could look back a year from now and see how much better off you are with a little more budgetary breathing room. Or you can start spending more and  blow right through that extra money and more, leaving you worse off than you were before you got the raise. Which will you choose?

The difference between these two outcomes is planning. If you don’t have a plan for your new income, it can be difficult to resist the impulse to spend lavishly because you “deserve” it.

Making a plan to invest your new bounty responsibly will keep you honest and ensure you spend in ways that help you down the road. Here are three steps to making a plan for your post-raise finances.

1. Stay off the treadmill

If you started from the bottom, you probably remember a time when you had little in the way of luxuries. You went to work, came home, ate whatever was cheap and went to bed. As you started to pull yourself up, you might have added the occasional luxury: better food, a nicer car, some entertainment or comfortable furniture. While the added luxury might have been a thrill at first, it probably soon became nothing more than the new normal.

This is what psychologists call the hedonic treadmill. With greater salary comes greater lifestyle expectations. It’s impossible to get ahead if you’re always chasing the life you think you “ought” to have.

In a sense, all you’re doing by getting a raise is turning up the speed on the treadmill. You’re not actually making more progress toward your goals. To do that, at any level of income, you need to spend prudently, not emotionally.

So, when your first paycheck comes in after the raise, avoid thinking about things you “deserve.” Try to keep your non-discretionary spending or the amount of money you have to pay for basic goods and services, the same. If you want to take your family out to dinner to celebrate, that’s fine. If you want to buy a new luxury car to reflect your new status, that’s just running faster on the treadmill.

2. Fix the basics

There are three very obvious ways to use your newfound money:

• Pay down debt

• Build an emergency fund

• Save for retirement.

If you don’t have an immediate plan for your new income, you could do much worse than putting your money in one of these three places. This isn’t a flashy way to spend your money, and it won’t make you happier in the short term. However, it will make your life easier in the long run.

Depending on the timing of your raise, you may need to make some paycheck adjustments. While you’re increasing your 401(k) contributions, you might also want to withhold a little extra in taxes. Your old withholding was done assuming you would earn your old salary all year. If you don’t bump up your withholding a little, you might end up with a nasty surprise at tax time. That’s another reason to make tax-deductible investments in your retirement accounts. You’ll get to keep more of your hard-earned raise!

3. Save for your values

Getting a raise is a great time to pull out your dream list. What would you do if money was no object? Would you take a trip to Tahiti? Start a small business? Whatever your dream is, you probably need some capital to get it started.

Fortunately, you’re about to get some more capital each month thanks to your hard work. The best way to get to your “money’s no object” goals is to save a little bit each month. You can do that with the nice bonus offered by your raise. In the long run, you’ll be happier with the investment in your future than you will with the little luxuries you might be tempted to splurge on today.

Genisys Credit Union offers a variety of short and long term savings options to help you meet your goals.  Check out or Savings Certificate and Money Market accounts or schedule a free investment consultation with a Genisys Investment Representative.

Securities and Advisory services offered through Cetera Advisor Networks, Member FINRA, SIPC. Cetera Advisor Networks is not an affiliate of Genisys Credit Union.  Mutual funds, annuities and other investments available through Cetera Advisor Networks are not insured by the FDIC, NCUSIF or any federal government agency, are not deposits, or obligations of nor guaranteed by Genisys Credit Union, or any other affiliated entity. Investments are subject to investment risks including loss of principal invested.

© Genisys Credit Union and www.genisyscu.org, 2019.  Unauthorized use and/or duplication of this material without express and written permission from this site’s author and/or owner is strictly prohibited.  Excerpts and links may be used, provided that full and clear credit is given to Genisys Credit Union and www.genisyscu.org with appropriate and specific direction to the original content.

Sources:

http://www.nbcnews.com/business/personal-finance/so-you-just-got-raise-here-s-how-handle-your-n659151

http://www.investopedia.com/terms/h/hedonic-treadmill.asp

http://lifehacker.com/5291389/avoid-the-hedonic-treadmill-trap-if-you-want-to-be-happy

http://www.moneycrashers.com/things-do-when-get-raise/

 

 

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