Tips for making the most of a pay raise
The following are some really great tips for making the most of a pay raise:
1. Use an auto pay system to put your entire raise amount into a savings account. You have not been using that money, or counting on it, so it will not hurt your lifestyle any to save it. So, instead of gloating over your raise and over indulging, take your special someone out to a nice dinner to celebrate, then talk to your human resources department to see if they can automatically put the raise amount into a savings account for you. If you never see it, you are much less likely to spend it.
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2. Put your raise toward your mortgage. If you want to make the most of your pay raise, put it toward your mortgage. Your mortgage is likely the biggest bill you have each month, and it is usually the one that has no end in sight. Most mortgages are a 30 year term. However, paying just a little extra here and there can cut a ton of time and interest off your loan. For example, if you make one extra payment a year, you can cut as much as 7 years off your loan. Do you know how much interest that can save you? So, make the most of it by using it to save yourself thousands and thousands of dollars. Paying extra onto principle of your mortgage helps, not hurts.
3. Invest it. If you have ever looked into investing, the golden rule is to only invest money you do not need right now, that way if you lose it, the loss is not so traumatic to you, or does not threaten your way of life. So, if you get a pay raise, the money you get increased on your check each month is money you were not counting on, and do not need. So, build yourself a little nest egg with it by investing it in low risk, low yield investments. Once it grows a little, and if you have ample knowledge, consider investing it in a little higher yield (and thus higher risk) investments.
If you want to make the most of your pay raise, you need to get your money working for you. By saving it you have money should a rainy day occur, or should you want to put a down payment on something, etc.
If you put it towards your mortgage you make the most of your money because you are saving yourself thousands of dollars. So, basically, you are making it go further by making it impact you long term, and save you money. Just think, if you invested the savings form having 7 years fewer payments, how big of a raise would you really have gotten? Pretty incredible right?
Last but not least, if you invest it, and get any kind of yield you are making more of your money than you would if you just spend it on something like a new outfit, etc. So, to make the most of your raise, use it wisely and save money to make money.
Raises are great, but do not get yourself caught in the trap of increasing your "needs" to meet your new found income. If you can keep your needs the same, and increase your income, that is how you accumulate wealth.
