I had my first ever annual performance review last week. I meet with my manager every two weeks, so I didn’t expect there to be any major issues. I’ve also only been at the job for about 7 months, so there wasn’t too much to talk about…. EXCEPT THE FACT THAT I GOT A RAISE. Woohoo!
I received a raise of about 4.5%, which is pretty substantial considering I haven’t been there that long. 🙂 I was expecting to at least get 2-3% and hoping for something between 4% and 5%, so I’m very happy.
So of course I have to re-budget to allocate this new found money. I am one of those strange people who actually enjoys budgeting and filling things out in little spreadsheets. The question is – where should this money go?
In general, I think it’s common sense to stick with the standard priority list:
- Consumer debt: This should be a no-brainer, I hope! If you have consumer debt, like credit cards, these higher interest loans should be paid off first. Just allocate a monthly payment equivalent to your raise – easy.
- Mortgage and student loan debt: Sure, interest rates are low right now, but it is still interest that you hasve to pay! My student loans started at a pain interest rate of $4.50+ per day based on 5.5% interest rate. Based on my payments, that’s down to $3.40 per day and I am still chipping away at it.
- Emergency fund: Everyone should have an emergency fund. How much you choose to have is up to your comfort level, but I think everyone should have some cash around for a rainy day. Even if you think you would just use your credit card or line of credit in an emergency, I would suggest keeping $500 in a savings account… just in case. And if you don’t have that, a raise is a great way to add some money to the pot.
- Retirement savings: If you haven’t started saving for retirement, adding a bit of money each month from your new raise is an easy and painless way to do so. And if you have started saving, maybe you can increase your savings by just a little bit more. It’s your future, after all.
- The fun stuff: I won’t say too much about this, except that yeah – of course everyone wants to do some fun stuff when they get a raise. New clothes, vacations, furnishings… whatever. If you have no debts and you are contributing to your retirement funds, I say go for it! Have fun.
For me, I have no consumer debt, but I do have my student loan and my mortgage. I have an emergency fund and my retirement savings is going strong at 15% of my gross income + employer matching. So there is not much debate for me – all of my raise is going towards my student loans. It might be boring, but it’s also pretty effective.
Has anyone else been fortunate enough to receive a pay raise this year? What did you do with the extra money?
