How to handle your salary increase
Getting a raise at work is a big achievement. Maybe you’ve changed companies or accepted a new position as well. With those changes comes the reward of a higher salary and increased responsibility at work, and it can be tempting to celebrate with a big purchase. But, before you do, there are steps you should take to ensure your financial stability and grow your net worth.
Is it really extra income?
At first glance, a raise might seem like extra income. But, because of taxes and retirement contributions, your take-home pay might be much smaller than you expected. Without that extra savings, how will you reach your retirement goals now?
Before you panic, wait a few pay cycles to calculate your extra take-home pay on a biweekly or monthly basis. This will help you determine extra money amounts so you can create a realistic monthly budget. Once you have more accurate numbers, reassess your expenses and see where adjustments can be made. It can be tempting to spend more as you make more, so be wary of lifestyle inflation, or lifestyle creep.
Next, pay off high-interest debts like credit card, medical, and student debt. The more debt you get rid of, the more you save in interest over time.
Finally, plan ahead for taxes. Your new salary will affect how much you owe, so you might end up in a higher tax bracket for the year. You may find that your raise disqualifies you for the deductions and tax credits you previously enjoyed. If you are overwhelmed with calculating the changes to your personal finances, the professionals at GYL can assist you on how to handle a salary increase.
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Our last tip
After being careful with your savings, it can be hard to celebrate your success. But you worked hard to earn an increase in salary, so take this opportunity to do something fun. Set aside a portion of your raise for a vacation or a purchase you’ve been wanting to make.
But why stop there? Take your personal finances to the next level by working with a professional. At GYL, we are focused on increasing your personal net worth. We offer accounting services for individuals and we offer proactive tax planning, and review and advise you on IRAs, stock portfolios, retirement and investments. Our team can help you navigate mistakes people make with a salary increase.