Are you expecting a pay raise? If you faced hardship during The Great Recession or are new to the workforce, you may not be. After all, you may just be happy to have a job considering just 10 years ago, unemployment was at 10%. But here in 2019, with unemployment at record lows, you have options both in where you choose to work, and how much your time is worth. Unfortunately, many people don’t know how to ask for a raise, or how to promote within their current organization.
While we won’t be discussing the strategies for career advancement in this article, we will be discussing how to make the most of your raise while avoiding lifestyle creep. Lifestyle creep is when your spending increases in line with your income. You make more, so you want nicer things. Whereas before an expense such as dining out was out of reach or an occasional luxury, you now consider it a necessity. Many people do it unconsciously, and don’t notice because they aren’t adjusting their spending plan accordingly. Here are some tips to manage lifestyle creep:
Dealing With the Financial Aspects
- Calculate how much you’re really getting. Before you make plans for spending your money, figure out the actual total. Just because you are making 5% more, that doesn’t mean you’ll see 5% more money in your bank account. Besides higher contributions to your benefits such as pensions, an increase in income may push you into a higher tax bracket.
- Establish goals. Think about your goals for the short, medium and long term. Your goals dictate your spending priorities. Discuss the matter with your spouse or other loved ones who will be affected so you’re all on the same page.
- Minimize additional monthly expenses. Protect your peace of mind and your finances by reviewing your monthly budget carefully. You may decide it’s worthwhile to take on new car payments but get a clear picture of the overall cost. Nicer cars may come with higher maintenance costs. Also consider the cost of your car insurance!
- Increase your retirement contributions. You’ve probably heard a lot of statistics about how Americans need to save more for retirement. If you can afford to max out your contributions to your 401(k) and IRAs, go for it. The sooner you start saving, the greater your nest egg—leverage your time while you still have the choice.
- Give yourself a treat. You deserve something nice. How about a new set of golf clubs or taking your spouse to Paris? It may make it easier to resist the temptation to spend extravagantly over the longer term.
- Create an emergency fund. Layoffs are a fact of life and emergency funds matter more than ever. Save at least 3 months of income in a safe, liquid account. Do you work in a niche/specialist role without many job openings? You may need to save even more.
- Pay off debts. Eliminating debt is a wise strategy. It provides a guaranteed rate of return considering you won’t be obligated to the loan and credit card companies. You’ll simultaneously improve your credit and boost your money confidence.
- Set up automatic deductions. If you’re concerned that you’ll spend your new discretionary income, then automate your way to better financial health. Set up direct deposits and automatic payments through your bank. You can even create a new account for special money goals such as a trip or holiday gifts.
- Share the wealth. Practice abundance. Donate more to charities you care about or start your own community initiative. See if your employer matches donations.
- Finally start that side hustle. Have you been talking about starting a new business or earning additional income? You might finally have the seed money to make it happen. Evaluate your options wisely, and finally get started!
Other Considerations When You Get a Raise
- Distinguish between experiences and possessions. Studies show that experiences contribute more to our happiness than possessions do. It may make more sense to take a vacation than to buy a bigger screen TV.
- Be considerate of people experiencing financial losses. You may feel awkward about your success if those around you are struggling. People who love you will often be delighted at your progress. On the other hand, you may decide to keep your good news to yourself in case you are concerned about how they’ll react. Consider that many millionaires are virtually unknown because they don’t flaunt it.
- Prepare for loan requests. Like any lottery winner knows, people may approach you for assistance if you have more money. It’s up to you whether you think it is prudent to loan anyone money regardless of your financial ability. Don’t loan money that you need for your own wellbeing; there are no loans for your own retirement.
- Start earning your next raise. You must be doing something right. Keep tracking your accomplishments so you can capitalize on the momentum. Be a lifelong student and your income will reflect your personal development.
- Recognize that income fluctuates. Keep in mind that your income will probably rise and fall throughout your career. This is especially important if you are approaching retirement. If your expenses have been on the rise, you’ll be in for quite a shock when your income drops. Start living on your expected retirement income now. Here is another tip: Find strength in your spiritual practices and personal relationships rather than basing your sense of self worth on how much you make.
Congratulate yourself for the excellent performance that earned you a raise. Remember to put those extra dollars to work for you, otherwise you may find yourself living paycheck to paycheck. Keep your goals at the forefront of your spending plan, and experience greater satisfaction in your life while being better prepared for whatever circumstances arise.