A pay raise doesn’t come to most of us very often, or at least not as often as we’d like. Some people don’t ever get a raise from their employers at all while others may receive a raise just large enough to cover the rising inflation rate if they’re lucky.
As a result, when that rare occasion does happen, you may wonder, what is the best use for your next pay raise.
Before we get to the end of the year, when some lucky employees may receive a pay raise, here are some ideas for how you can use that money to get ahead financially.
Give Yourself a Small Splurge
The first thing that comes to mind when you receive a pay raise might be rewarding yourself with something extravagant, and wildly expensive, that you want but would otherwise not necessarily purchase for yourself. This isn’t the best use of your money. Instead, splurge in a small way, such as an evening out with your spouse or significant other. By allowing yourself a small reward you still get the satisfaction of a little something extra without spending it all in one place. The leftover money can then be used more wisely by investing or paying off debt instead.
Repair or Replace
Now might be an opportunity to swap out the worn carpet in your living room with new carpet or purchase a new oven to replace the one that doesn’t work, allowing you to save money by cooking at home again. In other words, invest in smart fixes or replacements in your home that may increase the value of your property or make it better for you and your family in the meantime. If you use a little caution, you may be able to do these updates without adding extra debt for yourself when you get a pay raise.
Pay Off Debt
Since I mentioned debt earlier, let’s talk about using that extra income to pay some off.
This is your opportunity to get out of debt by using that raise to pay off credit card bills, auto loans, and other outstanding debt. You could start by paying off one outstanding debt with the smallest balance and then apply the monthly payment you would have made on that debt toward paying off the next smallest debt until it’s paid off. Continuing that cycle, without adding any new debt, you’ll eventually be debt free.
If you are already in good shape in the sense that you don’t have any debt, use the extra income to grow more money for your future retirement. Contribute more toward your 401(k) if your employer offers one, or add to your stock portfolio or purchase real estate. Using your pay raise in this way allow it to have the greatest impact on your future if you are already debt free.
Invest in Yourself
Another smart way to use your pay raise is to take that college course you’ve wanted to take but couldn’t afford before. It could take you to the next level in your career and gain you an even greater income.
Another option would be to finally get the dental work you have needed but put off due to the expense. You could also take an exercise course and get back into shape which could lower your healthcare costs now and in the future.
Whatever you think is the best use for your next pay raise, think about the impact it could have on your life both now and in the future before making a final choice. It could be one of the best decisions you ever make.
What else do you think would be a good use for a pay raise?