- Biggie is changing his tune…
It’s amazing how time flies during your first job. One minute you are sitting down for the interview and the next you are filing income taxes and meeting with the “big cheese” to go over your annual review. Now for most of us, the time to discuss your first raise is typically a year into your first job. Some of you go-getters might even get a raise before this time (go you!) and others may have to wait longer (sucks to be you!). Either way, no matter how big or small the jump in your paycheck, you’re pretty darn excited. So go ahead and celebrate a night on the town and call your parents to tell them the news. However, after the adrenaline wears off, it’s important to get down to business and decide how you are going to manage the extra cash.
First off, take a look at your financial lifestyle and answer these three questions:
1. Do you find yourself excessively budgeting and worrying about money?
2. Do you have a hard time paying off your credit card bills on time?
3. Do you have a lot of debt?
If you answered “yes” to any of these, back away from the computer and go use the extra income to cover your butt.
If these questions do not pertain to you, then thank the financial gods for allowing you to bring home the bacon worry free - and of course, keep on reading!
So here is the best (and yet simple) advice I can give you on what to do with your first pay bump:
Treat the extra cash like it doesn’t exist.
I apologize in advance for being a “Debbie Downer” and crushing your dreams of leasing that new Lexus you’ve been eyeing. But in all seriousness, if you’re already financially secure, take your first raise as an opportunity to build up your cash reserve by either putting away the extra income into savings, investing it, or both.
The best way to go about doing this is to figure out how much more your net pay is for each pay period.
Example of a bi-weekly pay period with a new raise:
Old Net Pay (per period): $1,200
New Net Pay (per period): $1,500
Extra Income per pay period: $300
In this example, by putting away an extra $300 per pay period, you can save roughly $7,800 more per year (given 26 pay periods for a 52 week year)….and remember, this amount does not take into account the Interest you will earn for having that money in the bank.
Helpful tip: Setting up a Direct Deposit account at work is great for the purpose of saving your extra income. With Direct Deposits (unlike a live check) that extra money becomes more invisible if it’s automatically deposited into your Savings account through your HR department. This way, you won’t be tempted to spend the extra money on unnecessary goods.
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