One of the most exciting things to hear from your boss is that you’ll be getting a promotion with a pay raise. In 2020, a study found that the average employee’s salary and wages increased by 3%. While this accounts for the cost of living in many cases, a new job title and responsibilities can also significantly boost your pay. Since many companies tend to review employees and give out promotions at the beginning of the year, now might be a perfect opportunity to take your next step with your finances.
Your salary increase could even be life-changing, and it could be similar if you’ve moved to a new job that has substantially higher earnings. Revisiting things with your financial advisor and professional financial team is strongly recommended to make sure you’ve considered all aspects of this and make sure that you can cover all of your bases with your new pay.
First, avoid the urge to make major changes to your personal spending. Once you have revisited your personal budget, you certainly can increase discretionary expenses.
But beware of budget creep, which is what happens when you continue to add more expenses without thinking about other options, such as eliminating your debt, setting aside further emergency funds, or updating your long-term financial goals.
Your promotion and raise may have also been pushed into a new tax bracket, which means that it’s valuable to work with your financial professional to understand the consequences and, if possible, increase your retirement savings, your monthly contributions to your IRA, and your 401k accounts.
You may want to max out these contributions after looking at all of your other expenses. Of course, before making any changes in your financial picture. After a major promotion, make sure to work with your qualified team of financial professionals.