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After three years, tons of overtime and stellar job performance, you’ve finally received the raise that you deserve. Your first instinct may be to live it up and buy that new car you’ve been wanting or to take a luxury vacation. Before you go wild with your newfound money, sit down and make a plan. You can treat yourself a little, but focus on long-term financial improvements.
Before you make any change in your spending habits, wait a few weeks and see exactly how much more you get in each paycheck. Taxes may be more than you think, especially if you’ve moved into a higher tax bracket. See how much your paycheck really increases before you plan how to spend the money.
Before adding new items to your budget, assess your current needs. If you’ve been struggling to pay the utilities or making your house payment strains your bank account, add more money to the current budget and don’t add any luxury items. The relief from monthly financial stress will be its own reward.
The experts at Forbes suggest investing a sizable portion of your raise into your 401(k), especially if you have been investing a minimal amount into it each year. If you invest the full amount allowed, your employer will likely match that contribution up to 4% instead of at a lower rate. Consider it free money. If you need the money before retirement, you will be able to borrow from your 401(k) as long as the amount is repaid within five years. More career milestone 401(k) tips are available here.
Once you’ve taken care of the necessities and of long-term planning, feel free to treat yourself and your family. Perhaps ten percent of your net increase can go toward that new vehicle or nice vacation. Even giving yourself a weekend away can feel like a well-deserved reward. If your raise is a significant one, you can go a little bigger with the luxuries but always be cautious.
When you get a raise, you will want to celebrate, but try not to spend any of that money until you’ve thoroughly examined your budget and invested in your future. Then indulge yourself a little and feel proud of what you’ve accomplished.