Handling a Salary Increase: Strategies to Maximize Your Money

Despite the feeling of instability in the economy, many working Americans are enjoying higher salaries. A new study from RIT Bank found that nearly two-thirds of American workers (64 percent) reported a salary increase in the past 12 months.

Strategies to Maximize Your Money

Proactively managing your salary increase is crucial for financial success. Instead of letting the extra money slip away, make a plan and allocate at least a portion of the funds to your most important financial priorities, such as paying down debt or saving for retirement.

Key Tips

Receiving a salary increase is impressive, but it’s easy to increase spending without saving more money. A financial advisor can help you make the most of your new income.

Important Salary Increase Tips

Many Americans are earning more: Among workers who received a salary increase last year, 38 percent received a raise in their current job, while 16 percent found a higher-paying job. Ten percent of study participants received both a salary increase and a higher-paying job.

Workers are receiving modest raises: More than half of workers (52 percent) who received a salary increase or found a higher-paying job in the past 12 months reported an increase of less than 5 percent, and 28 percent of participants reported an increase of less than 3 percent. Only 12 percent of Americans received a wage increase of 10 percent or more.

Employers are offering performance-based increases more than cost-of-living adjustments: 35 percent of workers who received a salary increase say it was based on their job performance, while 31 percent say they received a raise as part of an annual cost-of-living increase.

Workers blame inflation: About 60 percent of working Americans say their income has not kept up with rising household expenses due to inflation.

Be Proactive in Leveraging Your Salary Increase

Receiving a salary increase at work is a reason to celebrate, but a higher salary is also an excellent opportunity to start addressing financial priorities.

Instead of falling victim to the rising lifestyle, workers can channel the extra money from their salary increase towards long-term financial goals, such as paying off debt or building an emergency fund.

“Getting in the habit of paying yourself first – no matter how much money – is one of the best financial habits you can build,” says Sarah Foster, a writer and senior analyst at RIT Bank. “After all, time in the market and compound interest yield the highest returns on your money.”

Paying Off Debt

While enhancing savings and investments is important, directing a new salary increase towards debt repayment can help build a stronger financial foundation. Focusing on high-interest debt, especially credit card debt, can reduce the amount you pay in interest over time and improve your credit score.

With interest rates at their highest level in over 15 years, carrying credit card debt has become more expensive than ever. However, 47 percent of credit card holders carry debt month after month, according to a recent study from RIT Bank.

Paying off debt takes money away from other financial goals, such as investing. Nineteen percent of Americans who expect their financial situation to remain the same or worsen in 2024 say that debt is holding them back.

Paying off

Debt is always a popular New Year’s resolution, and 2024 is no exception. According to a study by Bankrate, 22 percent of Americans reported that paying off debt is their primary financial goal for 2024.

Increasing Emergency Savings

An emergency fund is a financial safety net that allows you to withstand job loss, medical emergencies, and other unexpected events without jeopardizing long-term goals or accumulating high-interest debt. Financial experts recommend saving at least three to six months’ worth of living expenses to build a strong financial barrier.

However, 81 percent of Americans did not increase their emergency savings in 2023, according to a recent study by Bankrate, and the majority feel they are falling behind in achieving this goal.

Inflation and rising housing costs are hindering saving efforts, leaving less disposable income to build an emergency fund. More than half (57 percent) of Americans who did not increase their emergency savings or have no savings at all say that inflation is preventing them from saving more, while 38 percent cite multiple expenses as a reason for not increasing their savings.

Foster says, “High inflation feels like a paycheck loan, and it may be one reason why Americans say the economy isn’t as strong as it looks on paper.”

A salary increase at work can be an excellent way to boost your savings. According to a study by Bankrate, 15 percent of Americans reported that saving more for emergencies is their primary financial goal for 2024.

Increasing Retirement Savings

Time is a valuable ally in growing your investments, so starting to save for retirement early is best. By starting early, you have more time to earn returns, and over time, these returns will earn returns of their own. This compounding effect can significantly impact the value of retirement savings in the long run.

But saving for the future is not always a top priority for Americans: nearly 1 in 4 workers (22 percent) say they have not contributed to their retirement for at least one year, according to a study by Bankrate. Meanwhile, 56 percent of American workers feel that they are falling behind in saving for retirement.

Understanding how much to save for retirement can also be a challenge. Many experts recommend saving 10 times your annual salary by retirement age, yet 37 percent of American workers say they need more than a million dollars to fund their retirement and live comfortably.

Working Towards Your Financial Goals

Americans often juggle multiple financial goals at once, from saving for a down payment on a home to building an emergency fund. A salary increase can help make it easier to manage multiple goals at once, but learning how to prioritize them is not easy.

When your income changes, it’s smart to update your budget and take a hard look at where your money is going. About 13 percent of Americans say improving spending management is their primary financial goal for 2024, according to a recent study by Bankrate.

Owning a home is a major goal for many individuals. In fact, 74 percent of Americans say that homeownership is part of the American dream, according to a financial security survey from Bankrate. But making this dream a reality has become harder with rising housing costs amid high-interest rates. Nearly half (46 percent) of those aspiring to own a home say that not having enough income is preventing them from buying a home.

Savings

Advice

Finance: Use a savings account to save money from a salary increase and earn interest while saving for your specific goals.

Do You Need a Financial Advisor?

Working with a financial advisor can be a smart step after receiving a salary increase. Financial advisors provide personalized guidance in managing money, investments, and achieving financial goals. They can assess your unique situation, offer advice and investment strategies, and help you plan for major life events like retirement or children’s education costs.

Whether you need to work with a financial advisor depends on your financial knowledge, goals, and the complexity of your situation. If you are confident in your ability to manage your money on your own, you may not need a financial advisor. However, if you are unsure how to prioritize different matters or need assistance in creating a customized financial plan, a qualified advisor can provide the help you need.

If you are not quite ready to work with a financial advisor, there are many other ways to increase your financial knowledge. Robo-advisors can help you manage your portfolio by making automated investment decisions based on your goals and risk tolerance. Mobile apps and budgeting tools can help you track expenses and set realistic savings goals. Finally, researching personal finance topics from reputable sites can enhance your financial knowledge and help you make more informed decisions.

If you decide to work with a financial advisor, be sure to look for one that charges a flat fee and has credentials and experience. With the right professional by your side, you can create a customized plan that prioritizes your goals and maximizes your new salary increase.

Frequently Asked Questions

How do I start investing?

Investing has become easier and cheaper than ever. Contributing to an employer-sponsored retirement account, like a 401(k), is often recommended. Contributions provide tax benefits when you file your federal return, and investments within the account grow tax-deferred. Additionally, contributions are automatically deducted from your paycheck, so you don’t have to worry about “forgetting” to invest. If you want to invest outside of a retirement account, many brokers offer $0 commission on stocks and ETFs, while robo-advisors can create a customized portfolio based on your goals and risk tolerance.

What do financial advisors do?

A financial advisor provides guidance to help clients manage their money and plan for their financial future. They assist in tracking, managing, and balancing investments and provide advice on topics such as retirement planning, insurance, buying a home, and budgeting.

How to create a budget?

To create a budget, start by recording your monthly income and expenses. Use a budgeting app or review previous credit card statements to get an idea of how much you spend in different categories each month, such as entertainment, groceries, and dining out. It is recommended to allocate an item in your expenses for savings so you don’t forget to pay yourself first. Ideally, your expenses should not exceed your income. The remaining amount is your discretionary income, or disposable income, which you can use for non-essential items or financial goals, such as paying off student loans.

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Handling a Salary Increase: Strategies to Maximize Your Money

Strategies to Maximize Your Money

Key Tips

Important Salary Increase Tips

Be Proactive in Leveraging Your Salary Increase

Paying Off Debt

Increasing Emergency Savings

Increasing Retirement Savings

Working Towards Your Financial Goals

Savings

Do You Need a Financial Advisor?

Frequently Asked Questions

Comments

Leave a Reply Cancel reply

Handling a Salary Increase: Strategies to Maximize Your Money

Strategies to Maximize Your Money

Key Tips

Important Salary Increase Tips

Be Proactive in Leveraging Your Salary Increase

Paying Off Debt

Increasing Emergency Savings

Increasing Retirement Savings

Working Towards Your Financial Goals

Savings

Do You Need a Financial Advisor?

Frequently Asked Questions

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