What to do when you get a raise at work?

Landing a raise at work is a big achievement. It helps boost your confidence about the job you’re doing and makes you feel like a valuable part of your company. But let’s face it: It can be easy to get a raise at work and then continue living your life as usual without making the most of those extra funds.

Wondering what to do when you get a raise? Consider the following five tips to make the most of that hard-earned money.

The first step of what to do when you get a raise: Start by figuring out how your boost in salary will affect your paychecks. Just because you’re going to be earning an extra $4,000 per year, for example, doesn’t mean that will be your additional take-home pay. You’ll need to factor in your tax withholding and any other deductions from your paycheck (think health insurance, commuter benefits or office gym membership). 

To determine your net pay increase when you get a raise, subtract your old paycheck from your new paycheck.

“After getting a raise at work, don’t immediately start spending your new money,” says Michael Banks, founder of a personal finance blog. “Instead, take a moment to assess your current financial situation and plan for future financial security.”

If you’re working to get rid of debt, it could be a great time to increase your efforts when you get a raise. Whether it’s credit card debt, student loans or a car loan, it’s a good idea to remove any debt standing in your way. While reducing your debt load may not give you instant gratification like a splurge to treat yourself to something, just knowing you are debt-free (or moving in that direction) can be a major win.

“You want to get rid of high-interest debt as soon as possible,” says Jackie Lam, founder of a financial blog for freelancers. “That interest will devour your hard-earned money.”

Creating an emergency fund is another great way to use your increased income, Banks says. When deciding what to do when you get a raise, think of an emergency fund as peace of mind for unexpected expenses. It’ll be there for you to fall back on if your water heater breaks, you need to have work done on your car, or someone in your family loses a job.

Most experts agree that your emergency fund should cover 3 to 6 months of living expenses.​

Did you know? You can give your emergency fund some serious momentum with the 360 Performance Savings account, which offers a high rate to help your balance grow.

It’s never too early to think about your “golden years” no matter your age. Using your raise to increase monthly retirement contributions, even if just by 1%, can make a big difference down the road, Banks says.

One of the easiest ways to prioritize your retirement savings is to make your contributions automatic. Determine how much of your raise you want to place into your retirement savings or 401(k)—a retirement savings account offered through your employer. Then automatically have the maximum amount possible transferred each month if it's possible given your day-to-day and monthly expenses. If your employer matches your contribution, it’s kind of like free money.

One of the most rewarding parts of deciding what to do when you get a raise is setting aside part of your increased income to treat yourself. Maybe you’ve had your eye on a new pair of shoes, or you’ve been wanting to get some new furniture for your home. You could even set aside part of your raise in a separate savings account for vacations. You worked hard to earn your raise, so enjoy it a little.

“Whenever I got a raise at work I’d put a small percentage of it toward my 401(k) contribution and the rest toward my monthly savings and short-term goals, like buying a new computer or going on a trip,” Lam says. “I was careful not to undergo lifestyle inflation.” That’s when your spending increases as your income does. Even though you’re earning more, you’re not saving any more than before.

Getting a raise is exciting. But it’s also an opportunity to make smart financial choices with your extra income. Creating a plan for your increased earnings can help you build wealth and avoid letting the extra money slip away.

Here’s what to do when you get a raise:

• Review your new take-home pay and adjust your budget accordingly. 

• Use your raise to strengthen your finances through saving, investing or paying down debt. 

• Enjoy your higher income while keeping your long-term financial goals in mind.

Don’t let your hard-earned cash sit idle—put it in an account designed to boost your savings and give your future self a head start. Open a 360 Performance Savings account today to grow your savings with a competitive rate.