Updated June 17, 2019. It's official: You're getting a raise! Congrats, all that hard work has paid off. There's a few more tasks ahead, though, if you want to make the most of those extra dollars. Here are nine things to do right after you get a salary bump.
1. Figure out your new take-home pay
Your raise might look huge on paper, but Uncle Sam is going to take a big chunk of that money. Our tax system is complicated, but, generally speaking, if you make more money, you pay a higher percentage to the government.
Before you upgrade your subscriptions, trade in your car or lease a new apartment, figure out what your actual take-home pay will be. Online calculators can help you get a net-income estimate. Or you can wait for a few post-raise paychecks to see how much more you're actually bringing home each month.
2. Consider the tax repercussions
Your total salary affects what tax brackets you fall in, but it also can affect the deductions and credits you qualify for at the end of the year. If you're receiving a big boon in salary, you might want to consult a tax professional to see if there's anything different you should do over the course of the year. At the very least, run the information on your new paycheck through the Internal Revenue Service's online withholding calculator. That'll help determine the ideal number of allowances to put on your W-4 form — which will preclude you from paying Uncle Sam too much or too little during the year.
3. Up your 401(k) contributions
Yes, it's important to save for retirement, but upping your 401(k) contributions also allows you to maximize your raise. That's because the money going into a 401(k) account is tax-deferred. The dollars you put in that nest egg lower your taxable income — and the amount of income tax you'll pay in that given year.
You can contribute up to $18,500 each year to a 401(k) account or $24,500, if you're 50 or older. If you can't hit those thresholds, aim to meet your employer's match. And if that's a stretch, at least up your 401(k) by 1% post-raise.
4. Pay down your debt
Nothing crushes your financial health like boatloads of red ink. If you're carrying big balances — especially on credit cards, which, unlike mortgage or auto loan debt, aren't backed by collateral (i.e. your home or car) — use your salary increase to pay them off faster.
A handy trick to paying down credit card debt: Make all your minimums, while putting as much money as you can toward the balance with the highest interest rate. That'll save you on interest.
5. Set up or boost your automatic savings
The easiest way to ensure you sock away more dollars is to directly deposit them into your savings account. Or you can set up an automatic transfer from checking to savings each month. Once you know your new take-home pay, set up or boost your automatic savings. You can usually do this online or by filing a new direct deposit form with human resources.
Don't know which savings account to choose? Fiona, a Policygenius partner, can help you compare high-yield savings accounts online.
6. Redraft your budget
How can you determine the amount you can comfortably put toward your debt or into savings post-raise? Redraft your budget, of course. Plug your monthly take-home pay into a budgeting app or Excel spreadsheet to identify and find a job for that extra income. We've got a simple "money in/money out" budget template here.
7. Bankroll your financial protection plan
We all have the one money thing we can't seem to cross off our to-do lists: Start a separate emergency fund. Get life insurance. Open a 529 college savings plan for the kids. Invest ... a little. All of the above are noble money goals — and none are prohibitively expensive. (Yes, that includes buying life insurance. We can help you quickly pull quotes here.) They just tend to take a back seat when we're time-crunched or money feels tight. Now's the time to take an extra $20 to $30 a month and bolster your financial protection plan.
8. Look into a better bank account
Your new income level might qualify you for a better checking account. Many financial institutions offer higher annual percentage yields on bigger balances or let you avoid fees when making a minimum monthly deposit. It's worth looking into whether your raise puts better bank offers within reach.
9. Treat yourself (a little)
After all, you earned it. Just don't go to extremes. Here are some tips on how to splurge while looking out for your budget.