Three Ways to Save Money After a Pay Increase

After several years of hard work, finally, you receive a nice promotion accompanied with a sizeable pay increase. Instantly, you start thinking of good uses for the extra money - a bigger home, nicer automobile, perhaps a new wardrobe. You've already spent the money before receiving the first paycheck with the increase. Unfortunately, this is a common practice. Many people wish for higher salaries, which would allow them to payoff debts, create a cash reserve, or begin planning for retirement. However, once the dream materializes, a large number of people waste the money on non-essentials. There are ways to save money after a pay increase. The key is spending wisely.

1. Pay off Debts - Using the extra money to reduce credit card payments or installment loans may limit your amount of disposable income. Yet, the result is extremely beneficial. If you are spending $400.00 a month on unnecessary debt payments, once the debt is eliminated, you will be able to keep this money in your pocket, and the pay increase will provide additional cash, which opens the door for creating a nest egg or starting a retirement account. Before making debt payments, establish a realistic repayment plan.

2. Start a Savings Account - If debt payments are few or non-existent, deposit the extra money into a savings account. Unfortunately, many working adults do not have an adequate emergency savings. Ideally, we should strive to reserve at least six months income. Of course, this figure is unrealistic for many households. With this said, two months income is more doable. Rather than spend the extra income on frivolous purchases, continue to live off your old salary, and deposit the extra funds into a savings account.

3. Don't Upgrade Your Lifestyle - The first thing many people do after a pay increase is "up" their lot in life. This may include buying a large home, more expensive car, or making lavish home improvements. While a pay increase affords the opportunity to meet a variety of expenses, there is no need to go crazy. Many people are caught in the trap of living paycheck-to-paycheck. Even if their finances improve and their disposable income increases, some people find themselves in the same predicament a year later. Living "beneath your means" has its advantages. Do not focus too much attention on the material possessions of your co-workers, friends, and neighborhoods. Buy the things you need, and place limits on the extras.