We all have this innate need to get an increase in income. In recent times, this necessity was borne out of a higher expense list that is directly affected by our debt payments. With the rising cost of living and mounting debt problems, there is a greater need to earn extra income to be able to afford all of these expenses.
However, if you think that a higher salary is the only answer to get rid of your debt situation, that may not always be true. In fact, some people who earn 6 figure incomes are in more debt trouble than those who earn $30,000 a year. If you think about it, the real answer to your financial troubles may not be more pay but instead, better money management.
2 important tasks when you get a raise
We are not saying that you do not work hard to have an increase in income. That is always a good thing – especially since basic commodity prices are always rising. However, there are two important tasks that you need to do whenever this increase happens.
Think of new financial goals
The first act that you must do is to come up with new goals. Determine how much money is added to your income and find out if there is a financial goal that you can target with that amount. Don’t be too hasty in spending all of that money. Sometimes, it may be better to put it aside for that new home that you wanted to buy or that new fuel efficient car that you know can save you a lot on gas expenses. It can even be to increase your retirement fund target. Consider the important expenses in your life that may be the best use for the increase in income that you got.
Revise your budget.
The next thing that you can do is to change your budget. Whenever you have an increase in income, the first thing that comes to mind is how you will spend it. That is natural but you have to do it while consulting your budget. Look over your budget and see what needs more funds. You can use online budget calculators, like the one from MappingYourFuture.org, to help ensure that your expenses will not overtake your income as you make the changes in your budget.
The first two entries in your budget that needs to be analyzed first includes your credit obligations and your savings. You have to look at your debt payments and see which monthly contributions can increase so you get out of debt faster. Not all debts allow flexible payments and some have prepayment penalties. You need to leave these alone. But if you have credit card debts, then pay as much as you can with the increase in income that you got. That will help eliminate the high interest amount that you have to pay off.
After looking over your debt payments, consider your savings. Go back to the financial goals that you have come up with and apply them here. Instead of spending the money on unnecessary things, increase the amount that you are putting aside. This is the smart way to do especially if you still lack in your emergency fund.
When your debt payments and savings are satisfied, that is the only time that you should consider the other expenses. See if you can resume that gym membership or that morning latte that you had to let go when your debt payments became a priority. But if you think that you can live without them, then you can keep your expenses as is.
2 things you want to do after a paycheck raise that you should not
When we get a raise there are two things that we automatically want to do. While there is nothing wrong with them, you need to reconsider if you really want to follow these natural reactions to an increase in income. Sometimes, it may be better to modulate these two activities if you really want to achieve a debt free lifestyle.
Celebrating. Don’t get us wrong. You have every right to celebrate but it does not have to be with that very expensive trip to the Alps or a very luxurious spa. You deserve that pat in the back but make sure that you still consider the important things in your life first. A simple dinner or a weekend getaway for the family should suffice to celebrate that increase in income. Try not to splurge especially when you have more important expenses to take care of like unpaid bills or mounting debt payments.
Better lifestyle. The reason why some people never really get out of debt even after a paycheck raise is because they immediately upgrade their standard of living. We all deserve to live a comfortable way of life but take note that it does not always have to be expensive. Sometimes, it is much better to keep the increase and save it for the rainy day. You don’t have to spend it on unnecessary things to show that you are now earning more than before.
When you get an increase in income, make wise decisions about how you will spend that money. Do not be too quick to raise your lifestyle because that may not always be the best move for you and your family.