Having to manage a pay increase is a problem most people want to have in their finances. Trying to deal with an increase in your income is better than looking for ways to stretch your budget. There are times when a pay increase will come as a pleasant surprise to you. You may not have an idea that you are getting one from your day job.
It can be a promotion you have applied for a long time now or simply a performance appraisal that merits an increase. There are also times when the company is having a banner year in profit and the business owners decide to give back part of that success to its employees. This is a lot like how Seattle-based Gravity Payments head Dan Price ensured a $70,000 minimum salary for his people.
He even slashed his own salary to help make this goal happen and he is doing it again with their Idaho-based office employees. There are also times when you find that you have to manage a pay increase when your own business is doing well. The net income that comes in has been increasing and you end up with more funds than you need.
These are the types of challenges a lot of people prefer over dealing with unmanageable debt payments. However, these changes in your finances need to be handled carefully to come out on top. Otherwise, you could end up in debt as well. You might think that you have a lot to go on and start to purchase expensive items only to land in debt.
How did you get that pay increase?
As happy as you might be, it is important that you pinpoint exactly how you got that extra money. This is an important step in helping you manage a pay increase well. It would be a lot easier if this came from your day job, it is a pretty straightforward analysis. You just have to look at how you got that increase in the office.
If the increase in your take-home money comes from your business, it might take you a much longer time to analyze but you need to go through it as well. A side hustle can also be the source of your extra money and the same process has to be done. The reason for this is so that you can adapt the best practices and repeat the same process.
If the reason why you were given an increase at work is that you reached a certain milestone, then it makes sense to aim for that goal in the following year again. Your business might have been doing good because you tapped into a niche yet high-income market so keep at it. The idea is to find out what works and do it over and over again.
Manage a pay increase by checking your lifestyle
If you suddenly receive a pay increase, you might want to start buying all the things you were not able to before. That new phone, smartwatch, or even putting down money on a new car seems very interesting. They are now within reach, knowing that even if you charge them on your card, you can make the monthly payments.
It really is a tempting situation to be in but you have to remember that when you need to make the most out of it. One way to do this is to stay within your budget and not increase your lifestyle. If your budget worked for you in the past, there is no reason for you to change it or add unnecessary stress to it by adding more debt payments.
If at all possible, it would be a great decision to try and lower your expenses even further. This way, you create more money on hand you can use to strengthen your finances. If you begin to have more elbow room with your finances, you put yourself in a position to better manage your finances. Your stress level can also go down because you are not that much worried about your payments.
Use the increase to strengthen your finances
As you manage a pay increase, it would be an excellent goal if you use those extra funds in trying to strengthen your finances. This is a lot better than giving in to your wants and spending all your money on unnecessary purchases. If you buy that new dress, you might use it once or twice and then it stays in your closet for the rest of the year.
However, if you use the extra money that comes in and invest it for your future then it stays with you for a longer time. This is one of the best ways to strengthen your finances because as you plan for your future needs, you lower the need to work for a lot longer time than you need to when you get to your retirement age.
The more you save, the more money you have to use to enjoy and improve your quality of life. You also get to help a lot more people if you love to share what you have. It also gives you the chance to put more time towards your hobbies and interests in life. This can even lead to having an income-positive hobby
Focus on your reserve funds
One of the best ways to manage a pay increase is to put some of the extra funds you have towards your reserve funds. This fund combines both your emergency fund as well as your rainy day fund. There is a big difference between the two and knowing which one to use can help you keep protected from unforeseen emergencies in the future.
Your rainy day fund is meant to help you with smaller unexpected expenses such as a lightbulb replacement, buying a new carpet for the basement that was flooded, or even a simple car repair. The emergency fund is the one you will use for big needs such as losing your job or even going through a medical emergency.
CNBC shares that only about 40% of Americans can cover a $1,000 unexpected expense with their savings. This is quite scary given that you never really know what will happen in the future. Having reserve money you can use can give you the chance to stay away from unnecessary debt. This is because if you do not have any emergency money, your first course of action is to borrow money against your credit.
Pay yourself first
One of the best ways to manage and use an increase in your pay is to invest in yourself. You can enroll in un self-improvement classes or even learn a new skill. It is also possible that you spend money on enhancing your current skill set. This increases your value at work or it can even push you into income-generating ventures.
You can even use the money to make sure that you are able to take care of your body well. This can include buying, preparing, and eating the right kinds of food to nourish your body. Use the money to join exercise classes or if you need to, sign up for a gym membership. Just make sure that you are able to make the most out of these expenses so you can reap the health benefits at the end.
There are a number of ways to manage a pay increase and the idea is to use the money to strengthen your finances and not bring it down. The extra money you earn can help build you up or break you down all depending on how you use it.