How to Adjust Your Budget When You Get a Raise
When you get a raise at work, you might be tempted to go out on a small shopping spree. While this is perfectly understandable, and you most certainly have a reason to celebrate, it’s essential you don’t get so caught up in your increase in cash that you make an avoidable financial blunder. Learn how to adjust your budget as well as your spending habits to make the most of your raise for the betterment of your financial future and to put yourself on the path to success like someone like Don Gayhardt.
Wait Until Uncle Sam Gets His Portion
Before you go out and make any major purchases with money you don’t yet have, it’s best you wait until you see how much taxes and withholdings you can expect to be taken out of your checks from now on. You might be surprised at just how much you get to take home, which could be more or less than you’re expecting.
Don’t Adjust Your Lifestyle Expectations If Doing So Isn’t Necessary
Once you learn you’ve earned a raise, you might start thinking of moving into a new house or apartment, buying a new car or eating at five-star restaurants every now and then. Before you do, think about how doing so could essentially keep you on the same financial path you’re onnow, but in a higher tax bracket. Instead of focusing on temporary pleasures, focus on securing your financial future in regards to retirement, personal savings, investing and the like.
Tend to Savings and Debts
If you have any unpaid debts, use your raise money to pay some of them off, or at least make larger monthly payments to get rid of them off faster. It’s also a good idea to start kicking back a bit more money into your personal savings account, mutual funds and stocks. Should a financial or health disaster befall you in the future, you’re sure to thank yourself for saving more than you spend.
Plan for Taxes
Because you’re earning more, you’ll most likely need to request HR withhold more from your checks. If you don’t, you’ll more than likely find yourself owing money to the IRS when tax time rolls around. Something else to think about regarding taxes is you might now be in a higher tax bracket because of your raise, which means certain deductions and credits you used to qualify for before might be pushed out of the picture. In any case, sit down with your accountant ASAP to get everything sorted out.
Start an Emergency Fund
While you may already have a savings account, you might not yet have an emergency fund. What sets an emergency fund apart from a savings fund is your emergency fund contains enough money to cover at least three (six is better) months of your recurring expenses. The reason it’s a good idea to have two separate accounts is so you don’t risk draining your savings account should you lose your job or be left otherwise unable to pay your bills.
Think About Making Charitable Donations
To help ease your tax burden, you can make charitable donations before the end of the current tax year. Make things easy on yourself by designating a certain percentage of your income, such as 10 percent, to charitable donations. If you aren’t comfortable donating money to charity, you can instead donate goods. In either case, be sure you go to great lengths to keep track of your donations with receipts and thorough records.
Congratulations are most certainly in order for your raise, but so is a bit of financial adjusting. Ease your way into this new chapter of your life by putting these tips to good use and you can look forward to a comfortable retirement.