Your hard work at your job has paid off and your boss has given you a raise. Congratulations! This calls for a (budget-friendly) celebration! Now that you’ve landed a nice bump in your income, you’re probably wondering what comes next for your money. How can you make your raise count in the long run?
If you just received a raise, here’s a look at what you should do immediately afterward to make that money count.
1. Set up a high-yield savings account.
Do you have a high-interest savings account? If you don’t, you’re not alone. According to research conducted by PurePoint Financial, 65% of Americans don’t realize the benefit of incremental gains that come from keeping money in a high interest savings account.
Respondents reported having almost five grand in a checking account. However, the money in these checking accounts accrues little or no interest. Hard working Americans are missing out on free money simply because they do not have these accounts established yet. Who can pass up free money on top of their raise? Sandy Walia, Head of Client Services at PurePoint Financial, advises establishing a high-yield savings account to set yourself up for financial success.
“Most traditional banks’ interest rates for savings are a fraction of 1%, so it’s important to compare rates,” Walia says. “If you’re not earning at least 1%, you’re leaving money on the table.”
While this may not be as fun as going on a shopping spree, Walia recommends avoiding the temptation to spend, spend, spend.
“You work hard. It’s important to make sure your money is working hard for you.”
2. Start paying off any existing debt.
Do you have student loan debt? How about an outstanding credit card balance? Did you ask your parents for a short-term loan? Was your answer yes to any (or all) of the above questions? Use your raise to start making these repayments in full. Pay off any debt you may have as quickly as possible. If a family member or friend loaned you money, pay them back as soon as possible. Getting rid of debts with interest is the best way to make sure you're saving more money over time. And paying off your friends and family will make you feel much better about your financial situation.
3. Boost retirement contributions.
If you have a retirement plan, now is the time to contribute more of your income towards it. Money-saving expert and US News & World Report contributor Andrea Woroch recommends taking your raise to boost retirement contributions.
“You aren’t used to the extra income, so you won’t even notice that it’s gone,” Woroch says. “This will help you to fast track your future savings goals.”
4. Start a college fund for your children.
Are you a working parent? Let your raise go beyond your needs and impact the educational future of your children.
It’s never too early to start planning for college! Woroch advises opening a 529 College Savings Account. This is a tax-advantaged savings plan sponsored by states and state agencies designed to encourage saving for education costs.
You may also consider opening a custodial investing account for anyone under the age of 18. Getting started is now as easy as downloading an app, too. Woroch recommends the Stash Custodial app. This app allows users to create a portfolio using any combination of individual stocks or funds available on their platform.
“Your first custodial account costs just one dollar each month with no add-on commissions or trading fees,” Woroch notes. “The app also offers an Auto Stash feature. This helps you set up automatic transfers to make sure you’re regularly investing in your child’s future education.”
Not sure exactly how much you need to invest? Take advantage of the college savings calculator provided on the website Savingforcollege.com. This calculator combines a college cost calculator with a 529 college savings calculator and allows you to chart out personalized projections based on your child’s education plans.
5. Be proud of your raise.
As you use this time to responsibly get all of your ducks in a row, don’t forget to give yourself a pat on the back. You worked hard for this raise and deserve to be proud of it.