5 Actions to Take When You Receive a Raise

For most of us in corporate America, it is review season! Review season is a chance for you (and your manager) to reflect on your performance over the past year. If your review fairs well, you may be in store for a raise or a promotion.

A raise is one of the best feelings in the world.  It means that your hard work has been noticed and your paycheck will be a little (or a lot) larger.  Per Bloomberg, the best employees can expect a 5% raise and the average employees can expect a 3.1% raise.  Whether the raise is 1%, 5%, or more, you can still put that extra money to work.

Congrats if you received a raise and/or promotion this review period. Now, what do you do with all that extra cash? Check out these 5 actions to take when you receive a raise at work!

5 Actions to Take When you Receive a Raise

Wait

Yes, you read that right.  The first thing that you should do after receiving a raise is wait.  Even though you may have been told that you just received a 5% or 10% raise, you shouldn’t go make changes to your budget yet.  More money means more taxes!  Although your pre-tax check may show an additional 5 or 10%, that doesn’t mean your post-tax check will show the same thing.  Before making any major changes to your finances wait and see what the raise really amounts too.

Review your Budget

Now that you have waited to see what your first check post raise looks like, it is time to get to work.  The first step is to reassess your budget.  Your budget typically has the following large scale categories:

  • Income
  • Saving
  • Fixed Expenses
  • Discretionary Expenses

If your saving amount is a percentage of your take-home pay, then you will be saving more with that additional income.

Related: Budget like a Pro in 20 minutes or less

Pay off Debt

According to an article by Nerd Wallet, the average U.S. household with debt carries $15,675 in credit card debt.  In fact, credit card debt costs consumers an average of $2,630 in interest per year, assuming an average APR of 18%.

Therefore, the third step to take is to pay off debt, especially high-interest debt.  High-interest debt is debt with an interest rate over 5%.  It is super important to pay off that debt first because so much of your monthly payments are going to interest instead of principal.

The easiest way to pay off debt is to make a plan and stay committed to it.  If you are making an extra $50 per month after taxes, then you can commit to putting that extra $50 toward your debt.

Related: 8 Strategies to Pay Off Debt Fast

Increase your Retirement Contributions

The next step to take when you receive a raise or promotion is to increase your retirement plan contributions.  Raising your retirement plan contribution 1% or 2% is typically painless and you may not even know the difference. This 401k adjustment calculator will literally show you how much an incremental increase of your 401k will have on your take home pay.

Many financial advisors estimate that you should be contributing 12%-15% of your salary to your 401k (between your personal contributions and employer match).  Don’t fret if you aren’t there yet!  Every year that you receive a raise or promotion at work, is an opportunity to increase your 401k contributions.  Slow and steady wins the race.

Related: 4 Things Millennials Need to do now for Retirement

Invest in Yourself

The last thing you should do when you receive a raise is to invest in yourself.  By invest in yourself, I don’t mean invest in your wardrobe.  Rather invest in things that will help you become a better person, earn more income, and pursue your dreams.  Have you wanted to get a certification?  Or start your own blog or podcast?  If so, now is the time to invest in yourself.  If you don’t invest in yourself, then who will?

Have you wanted to get a certification?  Or start your own blog or podcast?  If so, now is the time to invest in yourself.  If you don’t invest in yourself, then who will?

I received a raise this year and I took the opportunity to invest in myself in an unlikely manner.  After waiting a few months and saving the additional money, I decided to buy a new computer!  I know you are thinking, a computer, really?  My computer is literally on its last leg.  I look forward to working in other places than my living room and bringing you all exciting new content formats like webinars with a new computer!

Related: The Ultimate List of Money Moves Before 30

 

5 Actions to take when you receive a raise

What do you do after you receive a raise?  Tell us in the comments!

 

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12 comments

  1. I hope I get a raise. I have my retirement set by percentage so my contribution increases with my salary.

    I will also use what I get to pay off debt.

  2. Saving raises is really key! For most people, if you’re already living fine, then a raise is basically a bonus! If you save all of it, you can really see your savings grow fast!

  3. I am just starting a new job and I have my savings and ritement all sorted on a percentage. Hope I got a raise too soon.

  4. This is good advice. Back in the day before I became self-employed, I would save 70% of the increase and I’d spend 15% on self-development and I’d go on a spending spree with the rest.

  5. These are all great points, Tia! It’s so important to wait because I can tell you from experience that it’s quite upsetting to think your paycheck is going to be fatter the next pay period after a raise, only to realize that it’s just a little fluffier, lol.

  6. Well I am sure this post will come in handy for those still in corporate America. I cant relate to a raise as I am a freelancer and work for myself running my blog. I get a raise when the campaign checks get bigger!

  7. I couldn’t agree more! My raises are usually only 1%-2% each year. Not a lot. And when I started here 8 years ago I wasn’t money conscious at all. But over the years I have increased my contribution rate at least to the point where I will receive the maximum match that my company will do. It might have taken me 5 years to get to that point but going slow is better than not saving at all.

  8. I wish I was smarter when I was younger and used the money to pay off debt. I gotta do better. Great post!

  9. Great tips! I especially like that you said to wait. This is very important because companies especially n the non profit world have been non to not give the full amount so it is important to look at your check so you may adjust accordingly.

  10. Your advice is so important. I know so many people who have used their entire bonus checks on Christmas presents and still had debt. Doesn’t make a bit of since to me, but they should definitely read your post.

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