I recently had a major change in my financial status. A couple of months ago I was promoted at my job to Technical Manager. Along with the nice salary increase, there was also a generous bonus. I am now in a position where I am making more money than I ever had before. As soon as my manger gave me my financial information, my fingers began tingling. I couldn’t wait to start my calculations and figure out exactly how much money I would bring home. I have a prudent financial mind but I am human. I immediately began thinking about all the things I could now afford to buy, the work I could get done to my house, and the 101 ways that I could treat myself.
The little financial devil in me asked “ I worked hard for this money, right?” “I can spend it how I damn well please, right?” Luckily, my financial angel spoke up even louder and replied, “Yes, you work very hard for your money and that is why you should make wise calculated financial decisions! You can spend your money however you would like as long as it is done in a responsible manner.”
If not handled correctly, an increase in your income could lead to additional stress. When you practice financial discipline you can make a lasting improvement to your finances and your life. Below are a few suggestions on how to allocate an increase to your income.
1. Increase the contributions to your retirement fund. If your employer contributes to your 401K, make your contributions the maximum amount your employer will match. Don’t leave free money on the table. If you don’t have an employer matched 401K, invest in a Roth IRA.
2. Increase the savings in your emergency fund. Your goal should be to have savings of at least six months of expenses in case you are unable to work.
3. Pay down your debt. You should already be on a plan to pay off your high interest loans and credit card debt. Use the extra money you have to pay it off even quicker
4. Save for a trip or an outing: Life is meant to be lived to the fullest! Don’t spend all your time working just to pay bills. You have to make smart financial decisions but you have to balance that with enjoying life. Research shows that spending your money on experiences versus things can provide you greater happiness.
Resist the temptation to “keep up with the Joneses” and embrace decisions that are in your best interest. Stay committed to your goals and financial freedom will be the fruit of your labor!