5 Ways To Take Advantage of a Minimum Wage Increase
Written by
Angela Mae
Edited by
Levi Leidy
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The federal minimum wage is just $7.25, but it’s set to increase in some states starting next year. Depending on where you live, this means you could end up with extra income each month.
If you don’t need the cash for day-to-day living, there are other things you might want to put it toward. Here are just a few.
Tackle Your Debts
If you’ve got loans or credit card debt, even a small wage increase could go a long way toward paying those down.
“First things first, if you have debt, that’s where any extra money should go each month,” said Erika Kullberg, an attorney, personal finance expert and founder of Erika.com. “While it may be tempting to change your lifestyle after a wage increase, spending that money paying off debt ahead of schedule can save you a lot of money [in interest]. When you come out on the other side, you’ll be better off for it.”
Build an Emergency Fund
An emergency fund can get you through some tough financial times. So, if you don’t currently have one, take advantage of that extra cash and start building one.
“With an emergency fund, you and your family will be protected if you encounter an unexpected expense or if you find yourself out of work for a while,” said Todd Stearn, founder and CEO of The Money Manual.
“A good goal to shoot for is to have at least six months’ worth of living expenses in a high-yield savings account,” Stearn continued. “An online search can help you find the top rates, which are around 5% right now, compared to the current national average of just 0.61%.”
Start Investing
If you find yourself with a spare $50, $100 or $200 each month — or any other amount that you don’t strictly need for other things like everyday expenses or debts — invest it. You can start however you’d like, but you may want to max out your retirement contributions first.
“If your employer matches your contributions up to a certain amount, make sure you’re contributing at least that much,” said Stearn.
Once you’ve got a handle on that, you can always move on to investing in other things.
“Establish and maintain a diverse investment portfolio to minimize risk while making the most of your money,” said Stearn. “This might look like investing in an array of stocks and bonds as well as alternative investments, like precious metals and real estate.”
If all of this sounds a bit too complicated, there’s good news: You can simplify it by investing in index funds or ETFs (exchange-traded funds). This lets you automatically diversify while putting your money to work for you.
Save Up for Travel or Education
If you’re in a position where you can look beyond the necessities here and now and plan for the future — beyond retirement — consider putting some money toward future travel or education expenses.
“It can take a long time to save for travel, and if all your expenses are covered and you want to travel in the near future, you can use the increase from your minimum wage to create a travel fund,” said Annette Harris, AFC®, the owner of Harris Financial Coaching. “This way, you don’t have to get a loan or put your travel expenses on credit.”
In a similar vein, you may be able to use that minimum wage increase to save small amounts for future academic expenses — namely, your kids’.
“If your income increases, consider starting or adding to a college fund for your dependents,” said Harris. “Scholarships are not always guaranteed and student loans can lead to lifelong expenses. By setting aside money for your dependents’ college education, you can help ensure their education is funded and reduce the need for student loans.”
Set Your Goals
Even with a potential wage increase, you might not find it feasible to make major financial changes right away. In that case, take it slow and start by setting some financial goals — short and long term. It might take time, but starting will get you on the path you want and need to be.
“Think about what’s important to you — like buying a home or paying for a child’s education — and create a plan for setting aside some money each month until you meet that goal,” said Kullberg.
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