A pay raise or bonus is a welcome surprise, but you might have questions about how to put that income to good use. You have a lot of potential ways to use that extra cash, but let’s focus on a few that can help benefit your finances.
1. Set aside for a splurge
Getting an unexpected financial boost could push you to make that big purchase you’ve been planning. After all, you’ve worked hard to earn that bit of extra cash. But instead of going all-in on a significant spend right away, give it some time to think over your choices. If you recently received a raise, diverting some of your new salary to a savings bucket with an Ally Bank Savings Account can help you mindfully save instead of needing to play catch-up after a major expense.
Read more: Find out how to open a new account to pursue your financial goals.
2. Maintain your lifestyle
It’s tempting to raise your standard of living when you secure a higher-paying job or receive a pay raise. This kind of spending increase is known as lifestyle creep, and it’s best to avoid it, if possible. Some significant examples include moving into a more expensive apartment or getting a car with a higher monthly payment — but small everyday changes like buying a pricier coffee in the morning can add up, too.
While you’re certainly allowed to spend on the things that matter to you, increasing your spending across the board can make it challenging to allocate your money toward specific goals, such as saving, investing or paying off debt. It will benefit your overall financial picture to limit your spending as you did before your salary increase. This will also give you more wiggle room if you need to switch jobs or have unexpected increases in your cost of living.
3. Pay off debt
An infusion of extra cash can be the perfect opportunity to pay down debt. Look at what you currently owe, whether from credit cards, student loans or car payments. You have a few different options on how to pay it down, so take the time to research what works best for you. But reducing your debt is a smart use for that additional cash, especially if your loans have high interest rates.
An infusion of extra cash can be the perfect opportunity to pay down your debt.
4. Max out your retirement account(s)
With an increased salary comes the question of retirement account contributions. If you defer a percentage of your salary to your retirement and receive a raise, you’ll already be contributing a little more each paycheck. But, if you’re able, you could take it a step further by maxing out your retirement. This means hitting the maximum contribution limit set by the IRS, which is a way to boost your long-term retirement savings and provide some real peace of mind.
5. Contribute to a high-yield savings account
Taking a little bit of that extra cash and putting it into a high-yield savings account, such as an Ally Bank Savings Account, could kickstart your savings. A high-yield savings account is a way to keep your money accessible in case of emergencies while still earning interest.
6. Start investing
If you’re not already investing, having a little more money to move around can be an opportune time to try it using a brokerage like Ally Invest. It can seem like a scary undertaking, but you could start by keeping initial investments small to learn the basics. You can also consider different kinds of investing, like putting money into an educational fund for your kids.
Celebrate your wins
Receiving a raise or bonus is an exciting event that warrants recognition. Instead of immediately focusing on the next milestone, give yourself space to celebrate this achievement.
