Getting a Raise in 2024? 12 Things NOT to Do With Your Newfound Wealth
Written by
Adam Palasciano
Edited by
Cory Dudak
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Recently, CBS News reported that the average American worker should see a pay increase of about 4% in 2024. If you’re slated for a raise or a promotion in 2024, you might already be thinking about how you’ll use the extra cash.
While it might be tempting to live larger or use the extra funds for something fun, you might want to think twice about how you handle your increased earnings first. To that end, SoFi recently laid out12 things that you should not do when you get a raise.
1. Not Pay Off Debt
If you start earning more money in 2024 and you don’t pay down existing debt, you could be putting yourself in financial jeopardy. Some debt such as a mortgage isn’t necessarily a bad thing for your finances since each payment builds equity in your home. That said, tackling high-interest debt such as an overdue credit card bill is crucial. Some credit cards carry interest rates of around 20%, which can eat away at your raise if you don’t pay down the balance as soon as you possibly can.
2. Increase Your Lifestyle
Getting a raise might seem like the right time to live larger and spend more money on your lifestyle. However, “lifestyle creep” can also be a trap. If you start spending more money just because you’ve started earning more money, you might not have extra cash for more important things like saving or investing. In addition, if you find yourself living larger and then you lose your job, it could be tougher to make ends meet while you’re looking for new work.
3. Not Invest In Yourself
If you don’t invest in yourself when you get a raise, you could be hurting your future career prospects. Getting a raise is a perfect time to put some of that money towards improving yourself. This can mean taking some online courses to sharpen your skills or even pursuing a higher degree on the side.
4. Not Save More
Choosing not to save more when you get a raise may make it more difficult for you to build wealth while you’re still working. Whether it’s saving for future purchases or forecasted expenses, purchasing more long-term investments or starting a college fund for your child, saving more when you get a raise benefits your long-term financial future. If you don’t save more, you may find yourself struggling to pursue goals that require more money.
5. Not Start a Side Hustle
Not starting a side hustle when you get a raise isn’t a good idea. While most people rely on full-time employment to earn an income, taking a percentage of your increased earnings and putting it towards creating and growing a side hustle for yourself is very smart. Building a successful side hustle can mean a second revenue stream for yourself to build up your personal finances. In the event of a job loss, having a side hustle can be a financial lifeline to keep paying your bills while you search for new full-time employment.
6. Not Invest More
Not investing more when you get a raise isn’t the wisest decision. If 2024 ushers in your next raise of 4% or more, consider allocating1-2% of that raise to increased contributions to your savings account. If you have automatic weekly or monthly contributions from your checking or savings account, increase your automatic contributions at the same time that your raise takes effect. This way, each time you get a raise you won’t even miss the extra money and you’ll grow your savings even more.
7. Not Reevaluate and Update Your Budget
By not updating your budget when you get a raise next year, you could be tempted to spend that extra cash on items you’ve been desiring. Reassessing your budget is important so that you allocate more money towards savings, paying down debt and putting more of your money to work in your retirement fund. Consider the 50/30/20 budgeting rule when reconfiguring your budget: putting 50% of your money toward needs, 30% toward wants, and 20% toward savings.
8. Not Consider Inflation
Not considering the effects of inflation on your income when you finally get that raise next year can be dangerous. The past several years have seen some of the highest rates of inflation in decades. Consumer spending power has been eroded, despite annual raises. If you’re feeling the pinch of inflation, be sure to allocate a significant portion of your raise towards rising costs for your everyday essentials rather than living above your means and potentially going into debt.
9. Not Build Your Emergency Fund
If you don’t already have an emergency fund, not building one once you get your 2024 raise can leave you without extra funds for life’s surprises. Whether it’s an unexpected car repair bill, medical expense or a job loss, building, growing and maintaining an emergency fund is key to financial readiness no matter what life throws at you.
10. Not Reevaluate Your Retirement
Not reevaluating your retirement plan when you get your raise can mean not being able to retire as soon as you might like. If you’re enrolled in an employer-sponsored retirement plan, consider participating in an auto increase program. This way, each year upon your annual increase a set percentage automatically goes toward increasing your regular retirement account contribution. This method gradually allows you to grow your retirement savings without feeling a decrease in your take-home pay.
11. Not Prepare For Taxes
With increased income comes higher taxes. It may be tempting to spend more when you get your raise but it can be easy to overlook the tax implications that come with more money in your gross pay. Be sure to wait to spend more money until you see your take-home pay after your new tax deductions.
12. Not Enjoy Your Career Success
Above all, not celebrating or enjoying your career success after you get a raise in 2024 is not the right move. You can take a portion of your raise to buy yourself something nice you’ve been wanting or go treat yourself to a nice dinner. Take time to celebrate your hard work, career progression, and the continued financial success you’ve created for yourself.
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