The Biggest Mistake After a Raise
We all love the idea of getting a raise. Oh the things we could do with more money! Whether you are an hourly employee, salaried, or working on full commission, you will hopefully experience a raise many times throughout your career . It could be a raise in your current pay within the same job, a promotion to another position, moving to another company that pays more money, or money made from starting your own business. It is a wonderful feeling to make more money, because it serves as a reward for our constant improvement.
By: Tax Credits
However, there is a huge mistake many people make when they get a raise. Because of this, they really don’t see much of an improvement in their financial situation in the long-term. What is this mistake?
Too many people get a raise and react by increasing their spending by virtually the same amount.
Here are some ways many people react to getting a raise:
- Trade in their car for a more expensive one, even if their current vehicle is paid for or almost paid in full. “I’m making an extra $500 per month now. I can afford that $300 payment.”
- Rent a bigger apartment or spend more money on non-essential home improvement.
- Buy that TV, set of clothes, or whatever hobby or luxury item they’ve been eyeing for a while.
- Increase their dining out expenses.
What happens as a result of this? We make more money because we are working hard in the marketplace, but we remain in debt, still rent our home or pay the minimum on the mortgage, have no savings or retirement, etc. because we made the mistake of increasing our lifestyle by the same amount as our increasing income. Are the constant lifestyle upgrades worth it in the end?
Since we want to have results that are not common, we must react to increases in income in uncommon ways.
It’s okay to celebrate a raise with some lifestyle changes, but they should never increase by the same amount as your raise or you will remain in the same financial state you are in right now.
So, go out and celebrate that raise or promotion within reason. But make sure you come back to the table and format a plan on how you will use your newfound money to reach your goals.
Question: What would you do with the extra income from a raise or bonus?
When I had raises at my previous job, I continued to pull out the same amount of money that I always had when I did not have that extra income to spend. Instead, the extra income just sits in a savings account now, and it is as if it doesn’t exist.
Great. Automatically putting money in a savings or retirement account before we see it is a great way of “tricking” ourselves into thinking the money isn’t there. Meanwhile, the savings are adding up over time.