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Who doesn’t love getting a raise? They aren’t as common as they used to be. Did you know that there was once a time when getting a three percent raise, every year, was just standard? You didn’t even have to ask for one! Companies understood that, as the cost of living increased, so, too, should their employees’ wages. Now that sounds like a dream, which is a sad statement on our perception of fair treatment. Today, you need to ask for a raise and sometimes fight for a raise. If you get it, you often know that means you are valuable to the company. They could have hired somebody else for less, but they like what you specifically contribute. That feels pretty good to know. But don’t let it give you a big head – the kind of big head that goes off and buys a designer bag with matching shoes to celebrate this raise. That almost immediately defeats the purpose of the raise. However, people make those types of choices all of the time. Make money, then blow the money. A raise doesn’t do you much good if you don’t handle it responsibly. Even though it’s exciting and validating, a raise doesn’t mean you’re set for life. You still need to be responsible. Here are financial mistakes not to make after getting a raise.
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Upgrading your apartment
The second you make more, you may think, well, I just got a five percent raise so I can move to an apartment that costs five percent more. You’re just itching to bust out of your rent-controlled place and into a luxury unit. Stop right there. You should be saving your new, higher-income for a down payment on a house rather than throwing it away on higher rent.
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Getting rid of a roommate
You’ve had a roommate, in order to save money, but now you want to have the place to yourself. You can afford it. You want to ask your roommate to hit the road. Again, stop it. Keep your living situation as is. Put aside your new savings for a down payment on a home. That’s money much better spent than just having an apartment to yourself. And remember that your rent will continue to rise.
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Moving tons of money
You’ve been getting those offers from banks like “Open a checking account with at least $10,000 and get a $900 bonus!” The fine print, however, shows that if your balance ever drops below $10,000 that you’ll be charged a monthly fine, that will quickly eat up that bonus. You don’t know if circumstances will change, and you’ll need that cash. If that’s about all the savings you have, don’t put it somewhere untouchable, all because you got a raise.
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Leasing a nicer car
You have nicer pay so now you want nicer things. You buy into that BS that driving a nice car will somehow welcome wealth into your life. Nuh-uh. It will just suck more money out of your bank account each month on the lease. Stick to the car you’ve been driving. What if you lose your job or get a pay cut? You’ll be stuck with those new, higher monthly payments until the end of your lease.
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Letting go of side income
Perhaps you have a side hustle. You landed yourself some side gig like dog walking that brings in a little extra cash every month. Now, this raise is filling the gap for you. It’s bringing in that amount of cash you used to work extra for. Don’t let go of that side income. You never know what could happen – nobody saw this pandemic coming! Having a backup way to make money is so valuable.
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Dining out more
So you used to keep a very tight food budget, only allowing yourself to spend, say, $100 a week on food. Making every single meal and snack at home. Never going out with friends, or only allowing yourself to dine out a couple times a month. Now you want to say, “Screw it! Let’s go out more!” No, no, no. Dining out often is a surefire way to throw your new savings down the drain.
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Telling everyone
Don’t tell everybody that you got a raise. Don’t do it because, A) it’s tacky and rude. You don’t know what their financial situation is and B) some friends will take that to mean they can invite you out to more expensive things now. You don’t need that temptation in your life.
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Paying off all your debt
It may seem like paying off all of your debt in one fell swoop is the responsible thing to do, but hold on. If doing so would wipe you out of emergency cash, don’t do it. Right now, you have a good interest rate (hopefully?) and your monthly finances are sorted out. Perhaps just keep making payments. You may consider buying down your rate, but don’t wipe out your savings to pay off all your debt at once.
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Replacing your wardrobe
You want to dress for the job you…want? No, you already have that job. You want to show people you’re fancy now? Well that’ just silly. There is nothing wrong with your clothes. And if you feel that you need to wear designer clothes to feel validated, that’s an issue money can’t fix. You’ll always seek that next level of validation.
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Switching to a nicer gym
You’re tired of your bargain gym. You want the one that’s on the rooftop of a luxury building and has fruit in the water and high-end face lotions in the bathrooms. You want the one that a local celebrity goes to. Look, a treadmill is a treadmill is a treadmill. It’s so silly to spend a lot of money on a place you spend maybe an hour a day at.
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Joining a fancy social club
You know the ones. They provide workspaces, gyms, a nice bar, an on-site restaurant, and the opportunity to “network” with other professionals. The monthly fees are astronomical. It’s basically a second rent. But you say, “You gotta spend money to make money!” and you can make good connections there. Maybe it’s a good place for millionaires, but not for someone who just went from making 50K to 60K. You could be investing that $400 a month membership fee and growing it.
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Refurnishing your home
Something about making a little extra cash makes people want every part of their life to be, well, extra. You think this is the time to treat yourself to a full home refurnish. You want that special ergonomic standing desk you saw in a commercial and designer couches. Chillllll. Furniture only depreciates in value, and it does so quickly. It’s a poor use of your raise.
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Locking yourself into expensive contracts
You want that faster Internet. More data on your phone. The next level of subscription on every single subscription. You want upgrades, left and right. But the problem is that, a lot of these upgrades require year-long contracts. What happens if your income slips again, and you’re stuck in that pricy contract?
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Investing it all
You should invest some of your money, but not all of it. Getting a raise doesn’t mean that you should suddenly move everything you have into a Roth IRA or the stock market. You need to remain somewhat cash liquid. Again, never see a raise as proof that you’ll hold onto your job for eternity. Do you know how many people got raises before this pandemic, and then took huge pay cuts?
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Ditching your budget
“I make a bunch so I don’t need to count every penny spent now,” is not what you should be telling yourself. This is a great time to make a new budget, but one that’s intended to help you save more of your money. Figure out your new savings goal. It should be higher, since the raise. And create a new budget accordingly.
