7 Financial Moves You Should Make When You Get a Big Raise
Congratulations! You've just received a significant raise, an accomplishment worth celebrating. However, it's important to consider the long-term impact of this financial milestone. Instead of succumbing to lifestyle inflation, seize the opportunity to make smart financial moves that can set you up for long-term success. In this blog, we will explore several strategic steps you can take when you receive a substantial raise, helping you make the most of your increased income and secure a stronger financial future for you and your family.
1. Reassess Your Financial Goals
The first step after receiving a substantial raise is to reassess your financial goals. Take the time to evaluate your current objectives and determine if any adjustments are necessary. Are you saving enough for retirement? Do you have outstanding debts to address? Identifying your priorities will provide clarity on how to allocate your newfound income effectively.
2. Build an Emergency Fund
An emergency fund acts as a safety net during unexpected financial setbacks. It is crucial to establish or bolster this fund when you receive a significant raise. Aim to save three to six months' worth of living expenses in a separate account. This will provide peace of mind and protect you from relying on credit cards or high-interest loans in case of emergencies like job loss or medical expenses.
3. Pay off Debts
A raise presents an excellent opportunity to tackle high-interest debts. Prioritize paying off credit cards, personal loans, or any outstanding debts that accrue high interest. By reducing your debt burden, you not only save on interest but also improve your credit score and gain more financial freedom by increasing your cash flows.
4. Maximize Retirement Contributions
Increasing your retirement contributions is a wise move when you receive a substantial raise. Review your retirement savings plan and determine if you can contribute more towards your 401(k), IRA, or other retirement accounts. Take full advantage of employer matching contributions, as they are essentially free money. Growing your retirement nest egg now will help ensure a comfortable future while providing tax advantages in the present. If you are already maximizing your retirement contributions, consider investing money toward future college costs for your children.
5. Invest in Yourself
Investing in yourself is as essential as investing in your financial future. Use a portion of your raise to enhance your skills, pursue further education, or attend professional development workshops. Expanding your knowledge and expertise can lead to further career advancements and increased earning potential, making it a valuable long-term investment. If your raise or promotion was a result of special training or education, keep pushing the limits and continue educating yourself, or consider hiring professional coaching from people who have taken similar career paths.
6. Review Insurance Coverage
With an increase in income, it is essential to review your insurance coverage. Evaluate your health, life, disability, and property insurance policies to ensure they provide adequate protection for you and your loved ones. Consider any life changes or new financial responsibilities that may require adjustments to your coverage. Securing the right insurance safeguards your financial well-being and offers you and your family peace of mind.
7. Celebrate
We all know life is short and these events do not happen all the time. Celebrate these occasions with your family and friends. Enjoy a nice dinner, a trip, or something out of the ordinary to commemorate the raise.
Conclusion
Receiving a significant raise is an exciting milestone that can positively impact your financial future. By making wise financial moves, such as reassessing your goals, building an emergency fund, paying off debts, maximizing retirement contributions, investing in yourself, and reviewing your insurance coverage, you can leverage this increase in income to achieve your financial goals. If you need help reviewing your own personal situation and options, schedule a complimentary consultation with me, a financial advisor specializing in wealth planning for parents who want to provide the best life for their family and still retire well.