- Posted March 18, 2022
Mistakes People Make When They Get a Raise According To A Financial Planner
Congratulations, you got a raise! There is no doubt that those are deeply satisfying words to hear. What is less certain is how you should use the extra money from your raise. Many people approach a raise in a haphazard fashion, failing to utilize the extra cash flow in the most beneficial ways. Here are some common mistakes people make when they get a raise according to our certified financial planner.
Not Increasing Your Retirement Contributions
When your income increases, so should your retirement contributions. Apply the same percentage as your raise to your increase in contributions as part of sound investment planning. This way, you will continue to grow your portfolio and be ready for retirement. Experts advise that people should save around 15% or 20% of their income for retirement. If you receive company matching into your 401(k)-retirement fund, it is even more beneficial to increase your personal contributions. Doing so with a company match is like earning free money. The earlier you begin to save, the faster your investment accounts will grow. Learn more about our investment planning services.
Lifestyle Inflation
One of the most common – and dire – mistakes that people make when they get a raise is to inflate their lifestyle to match their income. If you were doing just fine on your pre-raise budget, there is no reason that you need to increase your budget just because you are bringing in more money. Rather than inflating your lifestyle just because you can, getting a raise provides a fantastic opportunity to save more. Try to reach that 15%-20% savings mark recommended by our financial planning experts. Many people choose to purchase a fancier car or larger house simply to upgrade their lifestyle. Commit to buying a new house for the right reasons only. Running out of space is one good reason to buy a new home.
Not Paying Off Debt
If you have consumer debt, the first place your net increase should go to is debt pay-off. Instead of paying the minimum amount on your debts each month, choose the smallest debt and apply your monthly increase to that. When you have paid off that debt, apply the money you were using on the first debt to pay off the second. Continue that pattern until all consumer debts are paid. If you own a home, consider putting the money from your debt-payoff toward your principal each month. Paying extra on your home can greatly reduce the amount of interest you end up paying.
Getting a raise is certainly something to celebrate. But after the party is over, be strategic with your additional funds. It is tempting to use them to inflate your lifestyle or go on a spending spree. However, being financially smart is one of the best gifts you can give your future self. Learn more about how our certified financial planners can help with investment planning services.
Check out this article to learn how financial planners can help you avoid trouble when dealing with insurance companies!
Contact Tenpath Financial Group for certified financial planning services.
