What to do with a raise

Well, I think everyone KNOWS what to do with a raise, but the challenge is DOING it (My definition of personal finance is DOING what you KNOW you should DO). Personal finance is 80% doing and 20% knowing. Just incase you don’t know what to do with a raise, here are a few ideas…

Don’t spend your raise…

until you get it. I can’t even count how many times I have received the news of getting a raise and started spending the extra money before I saw it on a paycheck. Inevitably I would spend more than I actually was getting and when it showed up on my paycheck I would be upset because I spent more than the raise was. By waiting until I actually saw the money in my paycheck, I could enjoy the raise, rather than just watching it go out the door to cover my purchases I made the 2 prior weeks.

Expenses rise to meet income, and naturally we find a way fill the gap between expenses and income. This is why you need to make a plan in advance on how you will…

Allocate your raise…

in a way that works for your financial situation. Personally, my allocation plan is:

  • 10% Tithe
  • 20% Pay down debt
  • 20% Retirement savings
  • 50% Spend!!

These percentages frequently change based on the needs of the family (i.e. if we are in desperate need of a vacation or if we are planning a large purchase). The point is to have some sort of plan for the increase, before it comes. I have tried it both ways, and I much prefer allocating the raise over spending it in advance. If you can resist the urge to SPEND immediately, allocate your raise wisely, and follow through, you will be nicely rewarded with the comfort of seeing your financial situation improve.

Just following this allocation over the course of a working life would yield a huge retirement nest egg and house that would be paid off many years earlier than scheduled.

Enjoy your raise…

after all, you earned it. Don’t be such a good saver that you can’t enjoy spending money. If you received a raise, you most likely earned it. As you can see with my 50% going to spending money that I am very generous with myself. I love rewarding myself for all the hard work I have put into organizing my financial life.

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4 Comments
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  1. i completely agree. this is definitely easier said than done, but it is very rewarding when you see not only all the money you have, but how disciplined you have become. at least that’s what helps me.

  2. Great ideas with what to do with a raise! I’m one of the ones that always spends it 100%… :(

  3. @Chris Davis

    I did it for years chris – Rose is right, it is rewarding when you see the fruit of the discipline…

  4. Ok, so I stumbled across this a little late, but I’m also a spend half, save half sort of person with my pay rises.

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