It’s tax season as well as salary raise season for many companies out there. If you are working for a company that is thriving in this recession, congratulations! I’m thankful to be working for one of those companies. Well, I’ll just cut to the chase. I got my first salary raise! I won’t go into details about the numbers, but let me tell you, it feels great to have gotten my first pay raise woo hoo!
If you’re like me, this is your first pay raise out of college. Don’t let the excitement get to your head! The average American will go out and buy the latest toy and squander their pay raise. Or worse, you might even know someone who decided to upgrade their car and respective car loan! Don’t buy into the commercialism people, you really don’t need temporary satisfaction! Remember, the key is to keep your eyes on the prize, and that’s retiring years earlier that your friends.
So, you just got your pay raise, now what should you do with it?! I’ll make it simple for you!
1- Pay down your debt. Do you have looming credit card debt over your head? Or maybe you have a little bit left on your car loan you could pay off? Or it might be that pesky mortgage. Whatever your debt is, pay it off with your salary increase!
2- If you haven’t already, boost your emergency fund to cover 6 months worth of expenses. I’ve always been a fan of the 6 months mark mainly because it usually only takes a couple months to find a new job if you get laid off…
3- Up your 401k contributions! The best part about this step is that it’s automated. I know for me, all I had to do was click on my computer mouse a couple times and voila, my 401k contribution has permanently increased. I’ve been watching this account grow pretty rapidly lately. The more money you can get into pre-tax 401k plans, the better.
4- Don’t forget about your Roth-Ira. If you’re not maxing out your yearly Roth-Ira account, you NEED to be. Anyone who is planning on retiring early needs to fully fund this account. I recommend Vanguard for individual Roth-Ira account 🙂
See how this works? This goes against the grain of common American culture. But let me ask you this. Do you want to be the neighbor who wonders why they are poor their whole life, or do you want to be the millionaire next door?
Seems like a pretty straight forward answer to me! The key here is to keep your standard of living, not decrease or increase it. You need to fight the urge to spend your salary increase of frivolous toys. It’s a sacrifice now, but wouldn’t you like to retire in your 50’s? I know I do.
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