6 Smart Money Moves To Protect Your Wealth Before Your Next Pay Raise
Are the signs all pointing toward a pay raise in your future?
If so, it’s easy to get excited in advance and start imagining how you’ll spend it. Whether you’re just hoping to give yourself breathing room or achieve a larger finance goal, you need a plan for that influx of money. Without one, that extra income can disappear just as quickly as it arrives.
Here are seven money moves financial experts recommend before your next pay raise.
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1. Think of a Raise as a Tool — Not Free Money
Most people think of a pay raise as a reward for their efforts, according to Kevin Marshall, a CPA and personal finance professional at Amortization Calculator. However, he said you're better off reframing it as “a very powerful tool”: one that, if not planned correctly, “will simply serve to fuel increased expenses and spending.”
Krista Goodrich, a financial expert and author of "The Boss Lady Investor" book series, agreed that mindset plays a large part. “People spend money before they even receive it. Lifestyle inflation has been real since money has been around — I see it all the time, someone gets a promotion and they buy a new car, go on a shopping spree or buy a bigger house.”
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2. Decide Where Every Dollar Will Go Before It Arrives
If you want a future raise to improve your financial life, you need a plan before your income changes.
“Know what you truly need and what is just a want," Marshall advised. "Decide now where the extra money will go. When you plan first, you stay in control.”
Goodrich suggested planning to allocate a raise as follows: 30% toward fun and lifestyle, 30% to paying down debt and 40% to increasing investments.
3. Automate an Increase Before the Raise
Automation turns good intentions into consistent results. Automate an increase in your savings or retirement contribution before a raise so that you aren't tempted to spend it, and your savings grow. If you earn $500 more a month after a raise, for example, Marshall suggested saving $250 to $350 of it.
“Soon, saving becomes another bill that you can’t ignore,” Marshall said.
4. Plan a Small Reward — But Avoid Big Lifestyle Jumps
Before your raise lands, think about one small reward you’d like to give yourself and plan for it.
“It is okay to enjoy some of your raise,” Marshall said. “But save first, then spend a little. Just do not spend it all.”
5. Adjust Your Budget and Prepare for Taxes
A raise can also change your financial picture, especially when it comes to taxes and spending habits, so be prepared for how it might shift your tax bracket or whether you might need to change your withholding.
“A higher income can mean higher taxes," Marshall said. "Make sure you understand how that affects you.”
6. Build a System That Keeps Working After the Raise Hits
Before your income increases, set up the right system to handle it, Marshall said: “With a strong financial system in place, your raise will work in your favor.”
After all, as Goodrich said, “A raise doesn’t change your financial life, your decisions do.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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