April 12, 2021
As a result of the pandemic, many employees did not receive salary increases this year, and some even experienced furloughs or layoffs. If you were lucky enough to receive a salary increase, it’s more important than ever to use the extra funds to help secure your financial wellbeing.
One of the best ways to take advantage of any raises is to be intentional about your additional income. Rather than automatically splurging on additional purchases or increasing your day-to-day expenses, you should come up with a plan to make the most of your good fortune and put your money to work for you. Here are our top recommendations for how to make your salary increase stretch in 2021.
Pay down debt
One of the first things you should put your additional income toward is paying down any high-interest debt you’re carrying around. Use the extra funds to chip away at debt from credit cards, personal loans, and auto loans. The sooner you’re debt-free, the less you’ll end up paying in interest, and the quicker you can start putting your money to work in order to grow your wealth.
Contribute more to your 401(k)
While it may still seem far away, retirement should be an investment goal no matter what your age is. One smart way to use your salary increase is to stash away the funds directly into retirement accounts like a 401(k). By automatically diverting your pay increase into your retirement savings upfront, you won’t even notice it’s missing.
Contributing to a retirement fund is especially important if you receive an employer match—you’re leaving free money on the table if you don’t take advantage of your employer’s matching contributions.
Save $100 a week for investments
You can also invest your salary increase. Depending on the size of your raise, investing an extra $100 per week can help you to sustainably grow your wealth. In fact, if you invest just $100 a week for forty years, you could retire a millionaire.
What you invest in is up to you, and can depend on a variety of personal factors, including when you’ll need to access your investments, your age, your investment goals, and your risk tolerance. Beanstox makes it simple to automate the investing process and invest in a diverse portfolio to grow your financial health.
Save for your child’s future
If you’re a parent, another important savings goal is your child’s future. Whether you’re saving up for college tuition, funds for school activities, or just want to provide your child with a solid financial safety net as they head off into the world, you should consider investing your salary increase in a savings or investment account for your child. If you think your child may attend college or university, you can open a tax-advantaged 529 plan in order to start saving up. You can also open a savings or investment account to help them get a financial head start in life.
Avoid lifestyle inflation
Whenever you receive a salary increase, it can be tempting to use the extra funds to increase lifestyle expenses, whether you dream of upgrading to a swanky apartment, purchasing a luxury car, or taking expensive trips. While it’s definitely okay to treat yourself in celebration of your raise, you should try to avoid lifestyle inflation and spending increase where you can. By maintaining a balanced budget and modest living expenses, you can ensure that you’re setting yourself up for future financial success.
Putting your money to work for you
If you’ve recently received a salary increase, congratulations! In order to make the most of your good fortune, the next step is to start making your money work for you. Whether you’re saving up for retirement, your child’s college tuition, or another big expense, investing with Beanstox is a great way to grow your wealth over time.
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