It's smart to make the most of a pay raise if you're lucky enough to get an increase in salary. Resist the temptation to go on a big spending spree or blow it all every month, and use your lovely raise for a much more sensible purpose. Here are some tips on how to make the most of a pay raise …
1. Stick to Your Previous Budget
One of the smartest ways to make the most of a pay raise is to stick to the budget you followed before you got your raise. You managed perfectly well without it, so don't scale up your spending now you've got more money coming in. This means that you don't absorb the extra money and spend it without thinking. And if you don't have a budget, drawing one up helps you make the most of your money and avoid excess spending.
2. Divert It to Savings
Having decided that you're not going to spend the extra money simply because you've got it, you should find a good home for it. Set up a monthly debit with your bank so that the money will automatically be paid into your savings account. Then you wont be tempted to spend it, and instead it will start earning interest.
3. Pay off Debts
If you've got debts, however, then paying them off should be a priority, especially if you're paying interest on the money you owe. Put your raise towards paying off the most expensive debt. It might not seem that it will make much difference, but even a small raise will start reducing what you owe, and allow you to get rid of your debts that little bit quicker.
4. Relax a Tight Budget
I'm all for sensible spending, but we need some fun in our lives as well. If you've been living on a very tight budget, as many of us have to do these days, getting a raise gives you the chance to relax your budget a little. Increase your entertainment budget, allocate more to clothes, or buy some better groceries - whatever appeals to you most.
5. Invest in Yourself
There is more than one way of investing - what about investing in yourself? Your pay raise could give you the means to finance a study or training course, which could enhance your career prospects even more. Or you could just study a subject out of interest. We have to feed our minds as well as our bodies!
6. Start an Emergency Fund
Everybody needs an emergency fund, as expensive problems can arise at any time. Without it, what would you do if your car breaks down or you're unable to work for a time? Use your raise to start an emergency fund if you don't already have one, and you'll be able to relax in the knowledge that you're covered should an expensive crisis pop up.
7. Treat Yourself (within Reason)
Finally, you could also use your raise to treat yourself - without going too mad, of course! Perhaps treat yourself the first month, and then subsequently use the raise for more sensible ideas such as putting it in your pension fund. Going out for a lovely meal, for example, allows you to enjoy yourself and then do something smart with the money.
A lot of companies aren't paying raises at the moment, so if you're lucky enough to get one use it to its full advantage. Don't just fritter it away, but put it somewhere that will benefit you in the long term. You managed without the money before, so you can easily use it for a smart purpose. What would you do with a pay raise?