Justin Howell, CEO of Rize, says the smartest — and most counterintuitive — thing you can do upon getting a raise is to basically pretend you didn’t get it.
“There’s so much temptation to start spending more when you get a raise, but the single best way to build wealth and financial security is to keep your lifestyle expenses in check as you build your income," he said. "It’s a good time to check in and make sure that you are saving enough and putting it towards the right things.”
“The knee-jerk reaction to getting a raise is fantasizing about all the ways you can spend it on upgrading your lifestyle, but there are other ways to put your money to use that will make you much happier long-term,” explains certified financial coach Emily Shutt. “Focus on cultivating a lifestyle that you can afford on the income that you already know you have, and then anything additional that comes in can go to debt reduction, emergency fund building, retirement saving, and investing — in that order.”
Start with analyzing that very first post-raise paycheck, says Ryan Frailich, founder of Deliberate Finances. That way, you know exactly how much you’re taking home. Then, look at your existing financial goals and figure out where you can make an impact or additional progress.
“The worst thing you could do is start spending more, so don’t inflate your lifestyle," agrees Andrea Woroch, a consumer finance expert. "Instead, look for ways to use it strategically. You don’t necessarily have to use all the extra income toward debt or savings, maybe you can use some to take that family trip you’ve been dreaming about. Just make sure you spend intentionally and on the things that you value.”