You've just received a raise or a promotion at work. Congratulations! Now that you have a little extra cash flowing in, what should you do with it? David Sant with Cyprus Credit Union has some helpful tips on how you can manage your additional income.
One of the hardest things to do when there is money involved is to wait and be patient. Before switching anything up, wait until you receive your first few post raise paychecks. You may overestimate how much money will go towards taxes or what you actually get to take home.
By waiting, you are better able to make rational choices when it comes to your funds. If you see something you want, wait a few days and see if it is something you really can't live without.
Once you know exactly what your money situation is, adjust your budget accordingly. If you have debt to pay off, allocate some of your additional income to pay that down faster. This extra income can also be used to save for a home, increase retirement contributions or save for the vacation you have been dreaming about for years.
Compound interest is your friend when it comes to retirement planning. Even an increase of 1% in your contributions can make a significant impact on your retirement. Talk to a financial planner to determine the best course of action when it comes to your contributions.
Look at Taxes
A raise at work could potentially push you into a higher tax bracket, causing your deductions and credits to no longer apply to you. Speak to your Human Resources department about increasing your tax withholdings.
You might also consider speaking with a tax professional about your increase and determine the best course of action. Doing this sooner rather than later will save you a major headache come tax season.
It's okay to treat yourself once in a while and you should, especially after doing so well at work. However, if you indulge too much, your mind can get used to that feeling and you have to keep buying bigger to get the same level of happiness. Don't let a raise spiral into financial trouble.
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