What Not to do When You Get a Raise

As some who has never really been into lifestyle inflation, the idea of blowing my raise has never appealed to me. Sure, I might buy something for myself or maybe treat myself to dinner, but it was unlikely that I would all of a sudden go on a spending binge.

However, I’ve realized that I’m not like most people. It’s pretty common for people who get a raise (or a windfall of money) to blow it right away. They may have a variety of reasons for spending that new found cash, but at the same time, there are things you shouldn’t do when getting a raise.

Don’t act differently at work

This really should be obvious, but do you know how many people act differently at work once they get a raise? If the raise came with a promotion, sure you may have different duties, but there’s no reason why you should be acting differently. For some people, they may be excited with the fact that they got a raise and want to share the news with their peers, but that’s a bad idea too. You have no idea what your coworkers make or if they were looking to get a raise too. How much you make is very personal and it’s best to not openly discuss it in the work environment.

Don’t blow your budget

Here’s a funny thing about raises. When some people hear they just received a $2,000 raise, they may go out and start spending more. The problem is, that $2,000 doesn’t include taxes so you’re actual take home raise will be much lower. That extra spending can also add up quickly if you’re not paying attention. Maybe you decide to start buying a snack every day to go with your coffee or perhaps you start spending more on your hobbies or travel. When you break down your raise to what you’re getting every month, it’s really not that much money. It won’t take much spending to blow your budget.

Don’t forget to pay down debt

Getting a raise is a blessing if you’re currently carrying debt. You can take that extra income and pay down your debt which gives you a guaranteed return of whatever you were paying in interest. In other words, you should pay down any high-interest debt first such as credit cards. Even if your only debt is your mortgage, you could use your raise to increase your payments assuming your lender allows it. Paying down your debt when you get a raise doesn’t sound very sexy, but you’ll be much better off in the long run if you do it.

Don’t forget to increase your savings

Okay, so let’s say your mortgage prepayments are maxed out and you don’t have any debt, what should you do now? You should increase your savings, what else? Okay, it’s not that simple. Let’s say your raise nets you an additional $200 a month. You need to figure out what’s the best use for that money. Maybe it’s worth increasing the amount you put away every year towards your RRSP or maybe it’s better to use it towards your child’s RESP. Then again, you could take some of that money and put it aside for a future vacation. Sure you’d be spending it later, but you’re still technically saving.

Don’t forget to spend some of it

Okay, despite all this talking about being responsible with your money and saving it; you really should spend some of it. It’s totally okay to up your vacation budget or to buy that new pair sneakers you’ve had your eye on. As you’ve figured out by now, as long as you’re not spending more than what your raise actually paid out, then you’ll be fine. You’ve worked hard for this raise, enjoy it!