RICHES: What to Do with a Pay Increase
If you’re at a point in your career where you’re about to get a promotion or if you’re about to make a job change, it is important to be prepared for the change in income! Being prepared allows you to make headway with financial goals and to pay down debt. If you are not making the conscious decision to make smart decisions with your money then you may very well not notice the increase in a few months and you’ll start to feel as though you still do not make enough!
1. Stay on Top of Your Bills
When planning on leaving your old job you need to keep track of what is due and when. My favorite way to track bills is with the Calendar Bill Pay Method. Continue paying your bills (preferably through auto pay) and hold back on any major purchases or splurges.
2. Know When Your Old Pay Ends
Ask your Human Resources Representative when you will get your last paycheck and if it will be a full paycheck or a partial paycheck. This information will help you plan for the possible pay schedule change and to keep up with your cash flow.
3. Know When Your First New Pay Day Is
Ask your new HR Rep when you will start to receive your direct deposit checks with the new company. Again, this information will help you plan for the possible pay schedule change and to keep up with your cash flow.
REAL LIFE EXPERIENCE: One time I left my job and received a 1/2 check as my final paycheck. My new job had a different pay schedule and I was expecting my first half check from the new job. I thought I would easily transition from one pay schedule to the next but because of a paperwork snafu I did not receive my check until the next pay day… 15 days later! Thankfully I was prepared for an emergency with an emergency fund account. Don’t get caught unprepared!
4. Think About What You Need
When you get a dramatic pay increase it’s easy to start spending. Don’t! This is your chance to really get ahead financially. If you can keep your bills the same and your expenses low, or close to your old expenses, you can really start to save. Before you get your new check you should spend time thinking about the things you need. You might need some new clothes or shoes for your new job or maybe it’s time to repair something in the house that you’ve been putting off.
5. Think About What You Want
Start making a list of the things you want. And I don’t mean new TVs and cars. I mean start thinking about your life goals and financial goals. Now is the time to start thinking about big steps to get ahead. I love to travel and I want to start paying off my debts so I have made a list of places I’d like to go and financial goals I’d like to accomplish.
TIP: If you want to see the effect of bigger payments on debts, check out this site. I learned about it from a coworker that is interested in personal finance and it’s a great tool to see how you can speed up paying off debts.
6. Get Your First Bigger Check
This part is easy: Get paid! Get your new paycheck and look at it. Let the new income sink in and appreciate where you are now in your career. Pat yourself on the back and be proud of this new accomplishment!
7. Treat Yo Self
Here’s the fun part! In celebration of your accomplishment, splurge on one item. Buy yourself one thing to celebrate: a nice dinner, a new handbag, a charm for your Pandora bracelet, whatever will make you feel happy! …but (and there’s ALWAYS a but), don’t go crazy. Don’t get a new car, new TV, or $3000 Valentino bag.
8. Put the Money to Work
Now that you’ve made it through the transition and celebrated, it’s time to put your new checks to work. Stick to your bill pay method and start using the extra money towards the goals you set in Step 5. Start paying off debts, investing more, and saving more.
Do you have any advice or stories about how to handle a pay increase? Please share in the comments section below!