Congratulations! You got a raise! Whether it’s annual compensation review time, you finally got up the nerve to ask for it, or (wonder of all wonders) you’re being acknowledged for exceptional work, a raise is something to be proud of. But one question remains: what should you do when you get a raise?
A note: paying off debt can function like getting a raise! It frees up a set amount of money on a monthly basis. So if that applies to you, congratulations! And read on for what to do with those extra dollars.
It’s really easy to mentally (or physically) spend money, but I have some tips to get the most out of your raise and keep moving toward your financial goals.
Celebrate – in a small way
First and foremost, you should celebrate your raise. Stop any self-deprecating minimizations of the fact. It doesn’t matter how small it is, how late it is, or how “undeserved” it is. Take some time and be happy about it.
I highly suggest brainstorming some small things that feel like celebrations to you. Things like: buying a bath bomb and taking a bath, going out for coffee instead of making it at home, or even just setting a timer for 30 minutes and reading. Things that don’t cost much, don’t require much planning, but that you can pull out when you want to reward yourself in a small way.
Now, choose one of those activities to do right now. I promise you’ll get more rewards later for your awesome raise. Start with something small and meaningful to mark the occasion before we get to the ~*serious*~ stuff.
Have a financial meeting with yourself
Ok, now that you’ve celebrated your windfall, we’re going to plan what to do when you get a raise. Start by having a financial meeting with yourself. Do you have those regularly? If not, check out my post on budgeting to see why you really should. If you have a checkpoint with your finances coming up in the next week or so, great – use that time. Otherwise, put a special session on the calendar ASAP!
Now, we have two steps to this particular financial meeting:
Assess what you’re spending
Pull out the last month or two of bank statements. Look at what you’re spending your money on. Is there anything you want to cut out?
Really think about this. Now that you’re figuring out what to do when you get a raise, you can take the opportunity to find other pockets of money that you might not want to be spending. Are there any subscription boxes that you really don’t love that much? How about that newspaper subscription that’s still getting delivered to your last apartment, but you haven’t cancelled it yet (this is a real example)? Now is the time to add those little bits to whatever your raise is. More money to play with!
Are you living the financial life you want to be living?
Take a moment and imagine walking into your perfect life. Perfect home to be your refuge from the world, perfect recreation activities, etc. Make sure this life is perfect for YOU, and not inspired by Pinterest or Instagram.
Now. What is different between that life and the life you’re currently living? Is there anything that you can take action on RIGHT NOW? I, personally, would love a garage to work on woodworking projects, but that isn’t something I can change in this moment. Instead, I might think through how I can bring that into my current life – maybe some storage for portable power tools?
The point is, figure out small, actionable ways you can build toward the life you want to live.
And to be honest, living the life you want to live might look like finally taking your car to the shop to have that check engine light figured out. This exercise doesn’t need to be Insta-worthy – it needs to be REAL and for YOU.
Anyway, now let’s talk about what to actually do when you get a raise.
A visual representation of Bonus Mode.
Figure out what to do with the raise
Ok, before we get into this, I want to acknowledge that a lot of my money talk veers into the touchy-feely, what-do-you-value-in-life stuff. And I stand by that – it’s exceptionally easy to spend money on things that don’t bring us joy or value or happiness or whatever.
But that part is higher on Maslow’s Hierarchy than, say, affording rent or reliable transportation or food. So please take care of those first.
But if your basic needs are taken care of, here are three ways to allocate your raise:
1. Short-term life improvements
While I would highly recommend not budgeting your raise for immediate spending, you could consider adding something to your budget that you otherwise would have cut out. Fitness studios, a new pet, or extracurricular activities (hello, tap lessons!) are all things you could add to your budget with a raise.
Just be careful that you don’t find yourself spending all of it! If you were happy with your budget before the raise, you should be able to save most of it, right?
But if you want a more tangible celebration of your newfound financial success, might I suggest…
2. Bonus Mode
This is something my husband came up with. Whenever we get a raise, the first month when it hits our paycheck, we go into Bonus Mode. So the amount of extra money from that raise can be spent on WHATEVER YOU WANT – for that first month. Generally, this gets spent on either large purchases we would have otherwise saved for over time (I bought my keyboard in Bonus Mode) or smaller things like video games. There are no rules (besides legality, I suppose), and you get to be a kid in a candy shop with that allowance.
3. Long-term Savings
Ugh, I KNOW, this is the boring answer you know is right but that you didn’t want to hear. But let’s be honest: if you ask what to do when you get a raise, you KNOW this is the right answer.
Just save it. Bump up your 401k contributions by a percentage point or two. Or dump that money in your emergency fund until it’s at 3-6 months of living expenses. Or put it away for when your car dies, you drop your phone in a lake, or you have to move (moving is freaking expensive, yo). Put that money wherever your financial goals say you should be concentrating your money on.
I know it’s more fun to spend your raise, but do the work to figure out what is going to make your life meaningful. Because when you spend on that stuff and save the rest, you’ll probably find that money doesn’t constantly occupy your thoughts – your kick-ass life will.
