I don’t know about you, but I never learned about money as a kid. No one in my schooling or personal life ever pulled me aside and shared their tips for making a budget or financially succeeding in life. So, it was no surprise that when I became a working professional and started making my own money, I was a bit lost. Then, to add to the mix, I started getting annual raises. While it was definitely a cause for celebration, I was always left wondering what to do with my new influx of cash.
If you recently rocked your performance review and you learned an annual raise is headed your way, you may be wondering the same thing. So, how can you use your newfound income to improve your life without spending it all in one place? Here are four steps to take to adjust your budget right now.
1. Evaluate Your Goals
When you get more money in your bank account, your first instinct may be to start clicking add to cart or book a vacation. While you deserve to reward yourself (and we’ll talk about that later), your first item of business is to evaluate your goals. Make a list of your current financial and life goals. Maybe you’re trying to build your emergency fund, save for a wedding, pay off debt, start a family, move to a new apartment or home, or start a business. Before you even begin swiping your card, you need to get clear on your short-term and long-term goals so that you can plan accordingly.
Once you have your list, begin to prioritize it. Evaluate your short-term vs. long-term goals and what’s a need vs. what’s a want. Priorities change over time. So, what you cared about when you first started your role with your previous income is likely different from your current focuses. Getting clear on your goals is crucial if you want to feel like you’re making the most of your money.
2. Run the Numbers
After you have your goals in order, it’s time to look at the numbers. If you already have a budget, it’s time to adjust the numbers. If you don’t have a budget, now is the perfect time to start one. There are a lot of helpful budget resources online (like The Financial Diet, Money with Katie, and Her First 100k) to help you get started. Or, if you feel comfortable with excel, a good ol’ spreadsheet with your income and expenses will do just fine. The important thing is to see where your money is going each month. Creating a budget, especially if you’ve never used one, can be an eye-opening activity and one that will help you achieve your goals.
Now that you’ve identified your priorities when it comes to saving and spending, and have a budget, it’s time to put dollar amounts on each item. Start by taking the increase in your income and divvying it up across your priorities. Based on your new income, maybe one month the extra money goes entirely to one category, and the following month it goes to another. Or perhaps you have enough money to contribute to your goals every paycheck. There is no one size fits all approach to budgeting, saving, and spending. Personal finance is personal for that exact reason. So, find a strategy that works for you, your goals, and your circumstances.
3. Pay Yourself First
This is by far the best piece of advice I’ve learned throughout my time as a working professional. As soon as you get paid, pay yourself first. If you’re wondering what this means, here are a few examples:
- Set up automatic 401k withdrawals from your paycheck.
- Transfer money to your savings account each pay period before you start spending.
- Create an automatic transfer to your investment accounts.
- Auto-pay your debt each month.
By allocating money to your goals each paycheck, you’re prioritizing your long-term financial well-being over the short-term dopamine hit you get from spending. The more you can automate, the better.
I’ve found this technique super helpful, and I’ve started treating the money I contribute to my savings and investment goals as a bill that needs to be paid regularly. But what I’m really doing is paying my future self and helping her achieve financial success.
4. Treat Yourself
For some, saving toward goals is a way to treat themselves. For others, they may want to reward themselves with a designer handbag or an expensive bottle of champagne (like I did when I finally paid off my student loan debt!). No matter which camp you fall into, you just earned a raise. Your company sees your value and wants to reward you for your efforts. That’s something to celebrate!
Be sure to relish the moment and acknowledge the hard work you’ve put in to get to where you are. Leave a little room in the budget for something that brings you joy, whether that’s a cup of coffee, a new pair of shoes, or a night out. It could even be a connection over a home-cooked meal with friends or family. Great conversations and relationships can fill your cup in a way that money can’t. Whatever you fancy, be in the moment and enjoy the fruits of your labor and your raise, knowing you’ve financially set yourself up for success.