One of the best things that can happen with your work is that you get a call from your supervisor or HR and as soon as you take a chair, you are told that you are getting a pay increase. It can be from the most recent assessment or employee evaluation where you got great scores and feedback. It can also be an office promotion which comes with an increase in basic pay plus other benefits.
Getting a pay increase at the office can be one of the best days you will have in a company for a number of reasons. Apart from the obvious additional funds in the budget, there are people who feels they are valued in a company with the promotion and salary increase. It is hard to work when you do not feel that the company does not appreciate what you bring into the company.
But getting an increase is not a usual occurrence because you need to work hard for it. Showing up to the office everyday and clocking in and out is not enough. You need to work hard and prove yourself as a vital part of the company’s growth and not just a seat warmer. If you think about it, the company has to perform well with everyone’s help to be able to up the pay of its employees.
Mercer.com shared that 3% is the average raise in base pay in 2015. This means that there are people who could have received much more than this and some received less. Among the two, the important thing is that consumers are getting an increase in pay. On a macro level, it is a good indicator that the economy would be doing good with the people having more money to use for purchases.
How to handle increase in base pay
It might seem like an easy task because spending is your forte but managing additional funds is harder than it looks. Here are a few things you might want to consider as soon as you get a pay increase and you get a higher pay at the end of the month.
- Wait it out. You need to check and put on hold that impulse to spend extra money and one way of doing that is to sit on it and just leave the money where it is. Similar to that that hack consumers use to manage those mall sales – they walk away and wait it out. If they still feel the urge to buy then they wait it out a little while longer until they are far away and their head clears so they can discern if they really need the items on sale. But you need to keep in mind that keeping it in savings account for a very long time might not be beneficial for you. As CNN.com explains, savings accounts yields painfully low returns and is not a place to let money grow. That being said, you need to resist the urge to spend the money and let it stay in your account to let that itch pass.
- Get a reality check. In between increasing cost of living, tax payments and even inflation, your increase might not be all that wonderful. Of course it is still extra money but you need to see what final amount is after taxes or your net pay. With a more realistic amount, you can then proceed to making informed financial decisions and see how and where you can put the extra money. If it can help you get that matching program by your employer for your 401(k) then go ahead and put it there. If the amount would have more sense being funneled into your children’s college fund then you can have it automatically transferred to that account.
- Increase your savings. This is one of the most important things to do with extra money from a pay increase. You need to understand that having a job and getting that increase every now and then will soon be a memory. When you get old, you will no longer be physically able to hold a job and this is where your retirement fund comes in. One of the sins against retirement funds is not adding to it over time because you not only reach your goal but you pass up the opportunity to take advantage of compound interest. Consider saving for the future and you might even be able to retire early.
- Spend a little. When you have some extra funds, be kind to yourself and spend a little. It can be a date with your wife in the movies or a nice dinner without any special occasion. But make sure that what you are going to spend won’t be more than the increase you are getting. You can have a quick ice cream with your kids or a pizza with your partner.
What not to do with an increase in pay
Now that you have an idea what you can do when you get a pay increase, there are also a few things you need to avoid. Keep in mind these few examples to help you make the most out of a pay increase.
- Max out your cards. Because you know that you have a higher pay coming in every month, you suddenly feel the urge to splurge and charge them all on credit. Paying off credit card debt is one of the most challenging financial problems you would have to face. One of the things you can do is to avoid debt altogether resist the urge to charge on your card only because you have the money to pay for it. You will never know something might prevent you from meeting your card payments which can get you deeper in the red.
- Tell the whole world about it. You need to tell your husband or wife but the whole neighborhood, you college friends and even your relatives does not have to know about it. You need to remember that money is sometimes relative meaning the more money you have, the more relatives you will suddenly have. But kidding aside, there is no need to tell the whole world that you just had an increase in your pay because it does not really accomplish anything.
- Be stingy. Do not be a miser and hoard all your money for yourself. Huffingtonpost.com shares that there are some people who keeps all their money to themselves as a way of exercising control and it is actually commendab;r. But to a certain point, you need to learn how to share because there is really no use for all those financial wealth you accumulate after you die. Share it with your family and friends try to see how you can donate to other people in need.
- Not having a plan. Prioritie your financial plans and see how you can make the money work to your advantage. This is one of the most important things you need to understand with your finances – make the money work for you and not the other way around. Do not be a slave to your finances so you need to have a plan on how to use it.
Having a pay increase is a great opportunity to help you reach your financial goals faster. You just need to have an idea how to go about it and keep in mind what things you need to avoid.