When things are going well at work and you’re getting promoted, you’ll get a nice boost to your salary. It’s often tempting to spend all that money on luxuries like a vacation or a new car, but it’s not always the most sensible choice. That money is an opportunity to sort out your financial situation and improve your position for the future. If you’ve just been given a pay rise or a big bonus, this is how to spend it wisely.
People often get excited prematurely when they get a pay rise. On paper, it looks like you might be getting a big chunk of extra money, but before you start making any big plans, make sure you look at your taxes. If the pay rise puts you into a higher tax bracket, you’re not going to end up with as much as you first thought, so just be cautious.
If your car breaks down or a pipe burst in the house, you’ll have to shell out a lot of money and you won’t have time to save up. If you don’t have a reserve to dip into, you could find yourself in big trouble. When you get that extra money in your paycheck every month, why not put some of it away in an emergency account? Then if disaster strikes, you’ll be prepared for it.
Pay Off Debts
Most people get a pay rise and think, great I’ve got more money to spend each month. That’s true, but you could have even more if you weren’t paying high interest debt repayments every month. If you’re paying the minimum repayments then you max out on the amount you’re spending on interest over the years. Use your salary increase as an opportunity to increase your monthly payments and clear all of that debt a lot faster. You won’t see any of the extra money for a while, but once the debts are cleared, you’ll suddenly find yourself with a load more disposable income.
One of the most important debts to pay off is your mortgage. Most people are paying for at least 20 years which is a long time to have that debt hanging over you. But if you pay off mortgage early, you’ll give yourself hundreds of extra dollars every month, as well as the extra money you’re getting from your pay rise. With that money, you can buy all of the luxuries that you would have spent the money on in the first place.
Enjoy The Money
While it’s important that you use your extra money to get your finances in order, remember to enjoy it as well. You don’t need to spend it all on lavish vacations, you could just put $100 of it aside each month and spend the rest on paying down debts and paying for home repairs. That way, you’ll get the best of both worlds.
It’s tempting to blow all of that extra money right away but if you’re sensible with it and use it to get your finances in order first, you can spend it in future.