5 Smart Moves to Make With a Raise

Your boss calls you into the office with great news: You've earned a raise, or perhaps you're getting a bonus for all the hard work you've done this year. Now you can buy those shoes you’ve been eyeing, or replace your old iPhone with the latest iteration.

While the urge to celebrate and reward yourself is understandable, hold onto your wallet and think before spending. Putting your long-term goals ahead of short-term needs can make your money work harder for you in the long run, reduce crippling debt, or boost savings for a rainy day or a sunny retirement.

Here are five things you can do with that raise that'll help you reach your financial goals:

1. Figure out what a raise means to your bottom line

An increase of $50 per week doesn’t mean you will see $50 more in your paycheck. The $50 gross increase will be reduced by taxes and other costs, depending on your situation. Your net pay, the amount you actually bring home, will be lower, probably much lower, than $50.

Check in with human resources or accounting, or simply wait for your first post-increase check to figure out the exact numbers before you whip out your wallet and start spending.

2. Pay off credit card debt

Owe more than you’d like on your credit cards? You’re not alone.

The average household credit card debt in the United States is $6,741 according to a 2018 study by NerdWallet.

So how best to pay off this debt? There are different approaches. Paying off the card with the highest interest rate makes the most fiscal sense, but eliminating the smallest debt can provide the biggest boost psychologically. Having one less card with a balance can provide a sense of satisfaction and create more clarity and focus on remaining cards—or with some hard work, just one card—left behind.

Whichever you choose, don’t forget that the debt you pay off will return if you continue to use the card. Put your credit cards on ice—even literally, in your freezer—and watch your debt go down, not up, thanks to that raise.

3. Boost your retirement fund

Retirement can seem a long way off, but clock hands tend to fly faster and the years grow shorter the older you get.

Retirement funds such as 401(k)s or individual retirement accounts (IRAs) have several benefits: You don’t pay taxes on them until you cash them in, and, sometimes, employers will match your contributions if you allocate a certain percentage.

For example, if your match starts when you allocate six percent, but you are only contributing four or five percent, use that raise to make sure you are hitting the amount required for your employer to match it—in other words, for you to get free money!

Even if your employer doesn’t match or if you are already contributing enough for a match, putting that raise toward your retirement fund can add up fast. Adding just two percentage points in plan savings, from 4 percent, for example, to 6 percent, could add more than $100,000 to your plan total, based on a $50,000 annual salary.

Every situation differs, of course, but the bottom line is that a little bit can add up to a lot.

4. Have a raise funneled into a high-interest savings account

With Hanscom FCU's Your Way savings account, you can choose an amount as small as $5 to as large as $500 to be transferred automatically each month into the account.

With an APY¹ of 5.00%, your raise will be earning some nice cash for you! And since it’s deducted automatically, it’s out of your hands and out of the way of temptation.

5. Pay down your mortgage

Paying off credit cards should be your first plan of financial attack because their interest rates are almost certainly higher than your mortgage interest rate.

If they're all paid off, though, adding even a little a month to your mortgage payment can make a big difference in the overall cost of your home and the length of time you will be paying for it.

By paying $150 more a month on a $300,000 loan with an interest rate of 4 percent, you will save more than $40,000 on your payments and the length of your loan will be reduced by five years. That's an impressive amount of savings!

So think about skipping the snazzy new shoes that'll lose their value the moment you walk out of the store. Use that raise or bonus to give yourself better financial footing!

Learn more about our automated savings account Your Way savings and how it can help you save automatically...and pay you an outstanding dividend to boot!