Increase Your Savings When You Get a Raise at Work
If you just got a raise at work, congratulations! You might be thinking that it’s a good time to go out and celebrate (and it certainly may be) but this is also an excellent time to take steps to improve your financial situation. If you get a raise or a bonus, try to avoid the temptation to spend the extra money. You may want to reward yourself with a small gift, like a dinner out or a new gadget or piece of clothing, but it’s also a good idea to think long-term.
Getting a raise or bonus is a big moment and a nice achievement, and it may be an achievement that doesn’t occur very often. This means you’ll want to use the extra money in the most helpful way possible. One of the best ways to use the money from a raise is to increase your savings and build your emergency fund.
The Importance of an Emergency Fund
An emergency fund is important. Life is unpredictable and sudden costs can pop up at any time. Your car could break down, you could get a leak in your roof, an appliance could stop functioning, or an illness or injury could force you to take some time away from work. These sorts of expenses often pop up without warning and they typically require you to spend money quickly, so you don’t have time to save for them when they happen. This means you’ll need to save in advance.
Unexpected expenses can be even more damaging if you’re currently living paycheque-to-paycheque. If something happens and you don’t have any money saved, you’ll probably be forced to take on more debt so you can pay to fix or replace your car, roof, or refrigerator. This can lead to big debt problems over time.
Saving your Raise
The main reason why a raise is a great time to build up your emergency fund is because you’re already used to living off of the money you made before you got a raise. Usually, when you’re trying to build up savings, you have to cut your budget and decrease spending to do so. This can be tough to do.
But when you get a raise or a bonus at work, you’re given a unique situation where you can increase your savings without having to worry about slashing your budget.
Most experts agree that most people should try to put aside three-to-six months of expenses in case of an emergency. It can take a while to build up an emergency fund this large, but even a smaller emergency fund can be very useful.
You don’t need to commit to saving your raise forever, just until you’ve built up a decent emergency fund. In the long run, you’ll find that building up your savings won’t just help you prepare for the future, but it will also help ease your stress. You won’t have to stay up late worrying about what you’ll do if your car breaks down or you lose your job, because you’ll have some money in the bank to help you deal with these situations.
Paying Down Debt
Another good way to use your raise is to increase the amount you’re paying on your debt. In fact, depending on how much debt you have and how much interest you’re being charged, you may want to make debt repayment your first priority when you get a raise.
After all, debt is expensive. High debt levels mean lots of interest charges, which can make it difficult to afford your expenses. If you are only able to make the minimum payments on your credit cards, for example, it will take you a very long time to pay off your debt and you’ll wind up spending a lot of money in the process.
If you get a raise, think about putting that extra money towards debt repayment. It will save you money in the long run and, much like building an emergency fund reduces stress, paying down your debt will ease anxiety as well.
Whether you decide to build your emergency fund or pay down your debt more quickly, the important thing to do is to consider the best way to use a raise when you get one. The moves you make at this point can make the rest of your life significantly easier and decrease the stress and anxiety you feel around budgeting and money management.