Make the most of the extra pay you get when you get promoted! One thing’s for sure, if you don’t pay attention, you’ll end up spending your extra pay and never notice. Let’s explore some ways to make the most of your pay raises.
Increasing retirement savings
Retirement may not be top of mind when you get promoted, but this is a great time to bump up your Thrift Savings Plan (TSP) contributions. You could save a lot more in your TSP without cramping your lifestyle by increasing your TSP by 1% at each promotion or pay raise. This could mean an extra 2-3% going toward retirement fairly quickly. During one enlistment, you could get five to ten pay raises. You’ll never miss that money if you divert it before it hits your bank account.
Paying off debt
Pay increases are a great way to boost your debt payoff goals. Take any additional pay and apply it toward your highest-interest debt. You can significantly reduce the interest you pay by making extra payments.
Paying down debt also frees up more money for other things you’d rather spend money on. You can save for fun things like vacations, a newer vehicle, or a nice dinner with your family.
Saving for vacations
Accelerating your vacation savings is a fun use of your pay raises. Even if you don’t plan a specific trip, you can start saving money so you’re ready to go when you find a good deal on travel. You can have guilt-free vacations this way. Saving up cash helps you stop worrying about money on vacation. Worries are a major buzzkill.
Upgrading quality of life items
Money is meant to bring us joy and fulfillment too. Maybe you’ve been waiting to upgrade your old cell phone or go on an extra date per month. Pay raises are a great time to consider purchases you’ve been putting off for a while.
Don’t go crazy, but you’re allowed to spend money on things you like. Since you worked hard for the promotion, you might as well enjoy a little reward.
Starting an emergency fund
A pay raise is a great time to start your emergency fund. Set up an automatic transfer each month going into a high-yield savings account. Getting a decent emergency fund built up takes less time than you think. An emergency fund is a great way to turn what used to be emergencies into simple inconveniences.
Saving for a new car
If you’ve already paid your car off, it might be a good idea to start saving up for a new car. We keep an automatic savings transfer going into our vehicle fund every month. When we need a new vehicle, we use that cash and buy it outright.
The vehicle fund also serves as a nice buffer against unexpected vehicle expenses. Have you seen how much new tires cost now? Having cash set aside can help you be prepared for whatever lies on the road ahead.
Combination of things
You may want to split the promotion pay raise between several different items. Depending on how big of a pay increase it is, you might be able to make significant progress toward several of your goals. If you fail to plan your pay raises, the money will be spent before you realize it.
On the other hand, you can start to make big progress by making small changes with your upgraded paychecks. Take full advantage of your extra pay!
