Congratulations are in order! After working your butt off you earned a well deserved raise. Once your boss tells you the good news you may have visions of popping an expensive bottle of champagne, but first stop to consider how the extra money can benefit you in the long term. This is not to say you shouldn’t splurge a little—you worked hard and you deserve it! But taking time to think about your personal and financial goals will help keep you on the right track. Whether your raise was big or small, we are here to suggest five smart things you can do with it.
1. Contribute to your retirement fund.
You already know that contributing to your 401(k) is a good idea, especially since most employers will match contributions up to a certain percentage. But what you may forget is that every time you earn a raise you should increase your contributions, because when your salary goes up so does the amount your employer will match. If you contribute just $100 extra dollars every month, that’s only $1,200 a year. After 40 years you will have saved $48,000 extra dollars (these figures are without also including employer contributions!).
2. Pay off student loans.
In order to have money to invest in your future, you need to pay off your past. Start paying more than the minimum requirement on your student loans to save yourself from paying more interest than you need to. Signing up for auto deductions will not only make your life easier, but save you money too. Many lenders offer a reduction in interest if you sign up for automatic monthly payments.
3. Conquer credit card debt.
If you are already paying the monthly minimum on your credit card, that is a great start! But if you want to speed up the process of eliminating debt, consider taking the monthly increase in your salary and sending it straight to the credit card company. If you were living comfortably before the raise, pretend you did not get one at all. You will feel so much better once you are debt free—and then you can start to enjoy your raise guilt free!
4. Create an emergency fund.
You never know when bad luck may strike. Health issues, car trouble, or your partner losing a job are life events that are already stressful enough without having to worry about money too. Start adding to an emergency fund each month and if the time comes to use it, you can take a deep breath knowing that you are safe for now. Experts recommend saving enough to cover three to six months worth of household expenses. Even if you never have to use this fund, the peace of mind alone will be worth its weight in gold.
5. Prepare for major life changes.
First comes marriage, then comes baby, then… a lot of extra expenses. If a wedding, house, child, or even a big trip is on your horizon this extra money can be sent straight to a special savings account. By keeping the money in a separate account from your general savings, you won’t dip into it by mistake. Tip: Personal finance program Mint allows you to set goals based on a certain date and also lets you choose the amount you want to contribute each month. Watching your piggy bank fill up is extremely gratifying!
6. Invest in you!
There are ways to invest that don’t involve oil, gold, or property. Investing in your well-being and future are just as smart uses of your money. Spending money that will further your education, career development, or benefit your health will reap plenty of rewards both now and in the future. Take an online course that will teach you a new skill or sign up for weekly kickboxing class that will get you in shape.