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Making the Best Use of an Annual Raise

on February 16, 2017

Do you get a raise each year? Or are you on some sort of raise schedule at your job? Does it seem as though no matter what you do, that ‘new’ money seems to not make much of a dent in helping you work out your budget? If this sounds like you, I have a plan to make the most out of your raise, even if it isn’t a big one. (Disclaimer, this is totally not an original idea of mine, but I wanted to share it because it is a way to make the best use out of your increase in cash-flow)

At my current job, we are offered the possibility of a merit increase (raise) if we have met certain criteria (done well at our jobs). You never know if you will get a raise or what it will be until about a week before it hits your bank account.But it seems like each year, the raise never seems to help me knock down my debt or build up savings any faster than before. Friends, I have found a solution!

First, you need to know what your raise is. If you don’t know that until the last minute, that is okay, you can start as soon as you know. There are two was to do this:

Way number 1: Let’s say that you will get a $0.50 raise per hour and you work full-time (40 hours a week). Do the math to figure out how much you would make (pre-tax) extra per check than before. In our example, 0.50 x 80 (if you get paid bi-weekly) = $40. Next, if you know the numbers of what gets deducted each check, than you can subtract that from your new amount, our you can decide whether you will work with your $40 extra or choose a slightly smaller number like $35 or $30.

Way Number 2 – Rather than go through all these steps, you could simply wait for your new pay to hit your bank account once, then take the difference to find out how much extra your raise got you post tax. For example. If your post-tax check before getting a raise is $800, and your next check, including the raise is $830, than your difference is $30)

Anyhoo, now that you know what you make, open a savings account and set up an automatic transfer of that $30 every 2 weeks (or $60 per month, if you can’t set up a bi-weekly transfer).

Now you will be able to actually utilize the extra you receive via a raise, rather than letting it absorb into your monthly budget without even realizing it. You can choose do keep building it up as savings, or pay extra towards a debt or save up for something special.

Has anyone tried this method? It really sounds pretty straightforward, it just isn’t something that we all think about when getting a raise. What normally happens when you get a raise? Let me know if you have any questions. Comment below 🙂





When you need to save money, how does it actually work to save your raise? (with example, such as .50 raise equals moving $40 to savings when you get your biweekly paycheck.

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