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Did you just get a raise at work? Congratulations! Getting a raise is a moment worth celebrating in your career, and you may wonder if there’s a “best” way to spend this money.
Find Out: 15 Signs It’s Time To Ask For A Raise — and How To Do It
And More: Want To Get a Raise? People With These 10 Jobs Are Most Likely To Get Promoted
With a bit of careful planning, this extra income can help boost several aspects of your financial health. GOBankingRates spoke with Heather Winston, CFP and director of financial planning and advice at Principal Financial Group, to learn which money moves to make with your well-deserved raise.
Build Up Your Emergency Fund
Turn the milestone of getting a raise into a second milestone where you are able to start an emergency fund if you don’t already have one.
Winston recommends starting off with a small percentage from your raise. Put that percentage into an account that’s accessible and a liquid asset, such as a high-yield savings account.
Remember you can keep adding to your emergency fund over time. Your emergency fund should be able to cover six months of living without a paycheck and may be used to cover unexpected expenses that come your way.
Reassess Your Budget
“Think about both your short- and long-term financial goals, and how your monthly spending habits might inhibit you from reaching these objectives,” Winston said.
In reassessing your budget, start by paying any necessary expenses first. Then, determine what you want to do with the rest of the earnings.
Winston uses the example of increasing the amount you’re putting into a workplace retirement savings plan, like a 401(k).
“If your raise was 3%, consider increasing your 401(k) allocation by 1% and then deploy the other 2% toward other goals,” Winston said.
See: When To Consider Job-Hopping To Maximize Your Pay
Pay Down Debt
Paying down debt might not sound like a fun way to celebrate getting a raise, but Winston said it’s important that any debt we carry is kept manageable.
“Many of us are hardwired to harbor guilt when we owe money. It doesn’t matter whether it’s to an individual, a mortgage loan or a credit card company,” Winston said. “The key is to figure out the right level of debt for you.”
Put a little bit of your raise toward existing debt, like credit cards, to help ensure it remains in check.
Find: 24 Tips To Change Your Career and Land Your Dream …….