Received a Raise or a Bonus? Stop Right There…

Don't rush out to spend your raise or bonus

Have you just received a raise?  OK, I know the urge is to go out and spend, spend, spend.  That new fridge for the kitchen or that flashy new coffee-maker you saw in the shop windows last month.  They are oh-so-tempting.  Even more tempting might be that new car to replace your 4-year old car.  Right?  Wrong.

Unless you have all your affairs in order, you know, 3-6 months worth of living expenses saved in cash or other liquid assets; little consumer debt; job security, you might want to think about NOT going out to create a bunch of new debt because of your raise.

Remember that Uncle Sam and his siblings at the local level will take up to 35% of your new raise.  You might also have automatic deductions from the raise for your 401K and 403B, depending on your age and the firm you work for.

So, if your finances are not perfect and economic times not the most certain, consider using your pay raise as a chance to boost your savings, not a chance to rival the ‘Joneses’. If you have ‘bad’ debt (i.e., store and credit-card debt), consider paying these down quicker and freeing your self from high interest rate loans.

Same thing with bonuses. By all means, enjoy a part of your bonus. Treat yourself to dinner and a toy or two. However, if you have a lot of credit card debt, it is not prudent to spend all your bonus on ‘toys’ you don’t need, i.e., the new 55 inch LED TV, when your 46-inch one is a couple years old.