Getting a raise at your
job is a great feeling. Not only does it improve your financial outlook, but it
also is a token of the work that you have already put in. It is proof that you
are headed in the right direction in your career, as you are moving in an
upwards trajectory in terms of your earnings. However, getting a raise can also
be dangerous to your finances if you do not manage it correctly. While this may
not make immediate sense, you must be careful and aware. Here are some of these
dangers that having a new raise can present.
Spending Away Your Raise
Many people’s first thoughts when they receive a raise are rooted in where they will now be able to spend the extra money. Unfortunately, many of these ideas can only harm your overall long-term finances. If you are not careful, you can essentially giveaway your raise on non-essential assets that will not improve your long-term outlook whatsoever. Look for ways in which your raise can allow you to save and invest, not just improve your immediate lifestyle.
Not Ramping Up Investments
You may think that the answer to the first point would simply be to stash your additional money from the raise into your savings. While this is closer to being on the right track, you also must consider the value of investments. Simply saving all of your extra money and not looking to redirect some into smart investments can cost you money over time. The money is not meant to be used anyway, so you may as well use it to earn more as it is inactive.
Not Padding Your Emergency Fund
Perhaps one of the biggest financial lessons that the COVID-19 pandemic taught us is that we truly can never be too prepared. There may be times in the future where some event forces us to be out of work, and we need to always be ready for this just incase it happens. Getting a raise at work is the perfect opportunity to help prepare for unforeseen events, as the money we get from it can be directed to an emergency fund to give us security.