A salary appraisal and getting a raise make everyone happy. After all, it’s your boss acknowledging your hard work and compensating you for it. But it can also be a double-edged sword. Yes, you’ll be making more money, but financial wellbeing can get to your head and lead to some poor financial decisions and habits.
Your pay raise works effectively when you control every rupee that you spend. Big purchases that you’ve been putting off are going to be tempting now, but you must focus on your priorities and avoid making unwise choices. Let your pay raise sink in, and once you’re ready, start planning what to do with the extra funds.
1. Wait A Few Weeks
If you start calculating, you’ll be surprised by how much of your raised salary goes to taxes and other withholdings. You should wait for a couple of weeks to understand how your raise is apportioned and how much you actually get to hold onto.
2. Analyse Your Budget
Before you add new categories to your budget or start adding money to underfunded ones, try to take a look at each category and analyze if you can cut down expenses anywhere. If you don’t have a budget, it’s high time you prepared one.
3. Pay Yourself First
Paying yourself is also important, after all, you worked hard to get this raise. It ensures that your motivation gets wings and boost with an improved lifestyle. Just make sure it does not reduce your savings share of the income.
4. Retool Your Retirement
Once you’ve addressed your expenses, take a look at your retirement plan again. More money means you can increase your monthly contribution. The extra money goes towards securing your financial future.
5. Pay Off Debts
You should try to pay off any debts that you have as you’ll waste less money on interest and improve your credit score. While this may not provide you instant gratification, it’ll reduce your stress and add to a much healthier financial picture.
6. Improve Your Contingency Plan
A. Health Insurance Plan
It is extremely important to get yourself a health insurance plan. After all, you won’t be able to enjoy the extra money you have if an unforeseen illness attacks you. With the stressful life that you lead to arrive at the raise, along with the increasing number of diseases attacking young people, getting adequate medical insurance is very important to secure your future.
B. Life Insurance
Make sure you have adequate life insurance cover as well. Best way to ensure adequate protection to your family’s aspirations and goals is a term insurance plan. Term plans are the cheapest way to protect your family if anything untoward happens to you.
C. Increase Contingency Fund
As you improve your lifestyle, it is important to revisit your contingency fund pool. It is generally equivalent to your 3 to 6 months of income, depending on the risk to your employment. Business people may relate it to their income cycles and may need even bigger emergency fund. You just need to ensure that all the necessary expenses including life and health insurance premiums can continue for a couple of months if you end up losing your job or the income.
7. Increase Charitable Donations
Donating isn’t just a nice gesture, but it can also help you save taxes. You should consider donating a portion of your income towards charity. Doing good shall bring good fortune around, as well as help you with tax deductions. If you’re not comfortable donating money, you may choose to donate goods instead.
8. Do Something Fun
You can plan something fun to celebrate, based on the amount of raise you received. You may want to take your friends and family out for dinner or buy a new electronic gadget for yourself, or plan a vacation – just make sure it’s in line with your budget, and you aren’t spending too much in excitement. Even if you focus on saving all the money you can, you should take a moment to enjoy your achievements and recognition that you’ve received and rejuvenate yourself to work with a newfound enthusiasm and zeal.
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