When you get a raise or a promotion, you are generally either given your hourly wage or your annual salary. The number may sound great on paper, and on the way home you may create an elaborate plan for the money or have an idea of what you want to splurge on with your new bigger paycheck. But when you get our first paycheck, you may be disappointed with the actual number you are bringing home. The large amount you are expecting has disappeared, well it is smaller than you thought it would be. You need to understand you paycheck, to understand exactly where your money is going.
1. Your Raise and Taxes
Unless you were close to jumping up a tax bracket, your tax rate (or tax percentage) is not going to go up. However, the amount they take out in taxes will go up, because of your raise. The taxes taken out of your check are a percentage of your total pay, so when your pay increases so do your taxes. You can try to limit your taxes by looking for options to reduce your net pay by increasing your retirement contributions or opening a flexible spending account during open enrollment.
2. Your Raise and Your Retirement
Many people do not consider that their retirement contribution will go up when they get a raise. Your retirement contribution is a percentage of your gross pay. This means that as your pay increases, you retirement contributions will increase. If you are not putting fifteen percent of your income towards retirement each month, you can increase your percentage with each raise. This is a great time to do this, because it will not negatively affect your take home pay, so you will not feel like the money is missing.
3. Spending Your Raise
It is possible to spend as much as you earn and then some if you are not careful. When you first get your raise, you may be surprised that you go through your money just as quickly as you did before you got the raise. You need to write down a budget where you responsibly spend the extra money you have. The first month you may want to go out and blow every extra penny you got, and if it is only one month, it will not hurt you in the long run. It is important to adjust your budget every time there is a change to your income, whether it goes up or it goes down. Once you have figured out your take home pay, you can create a solid budget. Take advantage of the extra money and put it towards getting out of debt or savings. If you were underemployed, you may finally be making enough to get by, but you still need to a tight budget until you get your finances back on track.
4. Keeping Your Raise
If you just got a promotion, a significant increase in pay or transferred to a new job to get your raise, you need to make sure that your boss feels like you deserve the extra money you are now getting. It is important to keep a positive attitude and continue with the work ethic that got you to this point. It will help you when you are ready to move onto to your next position in the company. With an ever-changing economy, you need to be prepared to change your jobs and keep all of your skills current. This promotion may put you in line for an even bigger promotion in a year or two. It helps to write a thank you card as appropriate for your raise, especially if you know your supervisor went out of his way to help you get the raise.