Getting a promotion and raise can put you on cloud nine. You worked hard and your efforts didn’t go unnoticed by your employer. If you were barely surviving before a pay increase, there’s the opportunity to give your finances a makeover. You can pay off debt, open a retirement account, invest in yourself and so on.
Unfortunately, not everyone makes the wisest choices after a bump in pay. This is your money, so you can spend it however you want. A salary increase might be the long-awaited answer to your prayers, but it’s only a godsend if you put the money to good use. Here’s what you shouldn’t do after getting a raise.
Think Twice Before Jumping Into New Debt
Just because you have money to purchase a new house or new car doesn’t mean you should. When some people get a promotion or raise, the first thing they do is start shopping for a new home or car.
Now, I’m in no position to tell anyone how to spend their money. And I also realize that due to financial reasons some people live in homes that are too small for their family or they don’t have reliable transportation. In these situations, a pay increase may provide exactly what they need to purchase another car or move into a bigger home to accommodate their family. Therefore, I’m not entirely against upgrading lifestyles after a raise, but I do recommend considering the motive. Are you upgrading out of necessity, or because you’re trying to keep up with the status quo?
If you’ve been living paycheck-to-paycheck, or if you didn’t have money to build an emergency fund or save for retirement, a raise can greatly improve your personal finances. But this will not happen if you become a victim of lifestyle inflation. If you’re earning an extra $800 a month, yet you take on an additional $800 in monthly expenses, you’ll be right back where you started—broke and struggling.
Don’t Become Everyone’s Automatic Teller Machine
After a sizable income bump, you may want to scream your accomplishment from the rooftop. Just know that if you start running your mouth and telling others about your good fortune, some friends and relatives might get the wrong idea and start coming to you for handouts.
It might start off with requests for $10 or $20 here and there, but these requests can become more frequent and more expensive. Things can get ugly when you start giving personal loans to friends or family and they don’t repay funds. Since there’s no way to know whether a personal loan will interfere with a relationship, don’t lend money unless you’re prepared to lose it.
Don’t Rub It In Anyone’s Face
You should also be conscious of how often you talk about your raise, especially if those in your inner circle aren’t doing well financially. Even if you don’t intentionally brag, little comments you make about you’re earnings or gloating about your new lifestyle can make others uncomfortable.
There’s a fine line between excitement and bragging. It’s okay to be excited and talk about a new job or promotion, but don’t bring money into the conversation. Maybe I’m a bit old-fashioned, but there’s rarely a good reason to bring up income in a casual conversation. When I think back to situations when others have shared their earnings with me, the information often came out the blue and seemed like a not-so-subtle attempt to show off.
A lot of good can come from a raise. In addition to funding retirement or an emergency fund, you can increase your charitable donations, purchase better insurance coverage or start saving for a vacation. Whatever you decide to do with the money, make sure you spend wisely and continue to live within your means.
What are other ill-advised ways to spend a raise?