In the typical large company raises usually come out once a year. Sure there are those occasional promotions and new positions every now and then, but some sort of pay raise is generally expected about once a year. It’s a time that is usually looked forward to, but then quickly forgotten as people move on to other things. So how is it best to handle a pay increase before it quickly gets absorbed into our spending and then forgotten?

Make a Concerted Effort

First of all, tell yourself that as far as your lifestyle is concerned, it never happened. If that’s too tough for you to handle then pretend that the raise was significantly smaller than in actuality. It’s important that you get your mindset right before you take any action with it, otherwise you’ll soon wonder how you ever “scraped by” without it. Keep your lifestyle in check and then you can move on to what you actually should do with the few extra dollars.

Just as there are a lot of stupid ways to spend a bonus, there are equally as many dumb ways to fritter away your raise. Even if you don’t purposely change your spending or buying habits, the tendency will be for any little extra amount of money to somehow get spent. Somehow the lifestyle will inflate to fill the means if not consciously kept in check. I don’t want to get into all the unwise uses for your raise though; I’d rather focus on the more savvy uses thereof.

Savvy Ways to Spend a Raise

1. Increase your contribution percentage to your company sponsored 401(k) or other retirement plans. This is probably the simplest way to ensure that you don’t just spend the extra funds since they’ll be deducted automatically from your paycheck and you’ll never see it. It’s also one of the few ways to actually save all of the raise since contributions to these qualified plans can be exempt from any tax.

2. Set up automatic transfers, or payroll deductions if your employer has the capability, to a high yield savings account and you’ll again never miss the money since it’ll never pass through your hands. This is a great way to bolster the emergency fund, save for a down payment, or achieve any other financial goal that you have. It won’t take much time at all to set this up and then you can leave it on autopilot.

3. Use the extra funds to pay down any debt that you owe. I will caution you though, that this won’t make a bit of difference if you don’t also resolve not to rack up the debt again. Paying off debt shouldn’t be free license to go out and spend again putting you back in the same situation you were to begin with. And once your debt is paid off, go back and see number 2.

4. Consider donating to a charity or helping others in need. This is a great way to remind yourself of what’s really important in life. Being able to give and help others is one of the greatest feelings around. And it’s just a side benefit that you don’t have to pay taxes on these funds either. You’ll be surprised at how rich you’ll feel when you’re able to help someone in need.

I’m sure that you can think of many other great ways to make use of your raise, but the point is to make a conscious effort to use the funds wisely and improve your financial situation or that of another. What are some other ideas you have to make the best use of your raise?

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