According to the Census Bureau, the median income for all workers was $41,535 in 2020. That was lower than the same figure from 2019 of $42,065, likely in part due to the pandemic. For those who receive near the median at their jobs, receiving a raise or bonus can be a nice boost for their finances.
But that money can disappear quickly if you don’t manage it properly. While it is all too easy to let yourself fall victim to lifestyle inflation along with the inflation that’s impacting the economy, making a few savvy moves will allow your money to grow rather than disappearing. Here, we outline a seven ways to make that happen.
1. Determine Your Goals
If you get a bonus or a raise, the first thing to do is determine your goals. Once you understand that, you can make the right moves with your influx of cash. “If your goal is to get out of debt, then that is a good place to put the bonus,” says Jay Zigmont, CFP and founder at Live, Learn, Plan. “If on the other hand you have paid off your debt and are working towards retirement, then that is where your bonus should go,” says Zigmont.
He further notes that the key is to be sure not to see your raise or bonus as “found money” you can spend frivolously. Unless you have already met your financial goals, there are probably several better uses for your money.
2. Prioritize High-Interest Debt
Depending on how much money you currently earn and whether you get a bonus or a raise, there are some types of high-interest debt you might consider. For example, if you receive a bonus of a few thousand dollars, you can put it toward paying off credit cards.
If you have student loans, the balance on them might be more than what you have in credit card debt. Hence, if you get a raise, you could focus on paying more of your student loan balance. While student loan interest rates are not as high as they are for credit cards, the high balances could mean a lot of money goes toward interest payments if you don’t repay them quickly.
3. Redirect Your Raise to Savings
If you happen to get a raise at work, it can be easy to spend it on a new phone or some nice new clothing. But what if instead, you simply redirected your raise into savings, allowing you to build wealth while maintaining the same standard of living?
Howard Dvorkin, chairman at Debt.com, recommends one way to make that happen. “You can ask your HR or accounting department to split your paycheck in two,” Dvorkin says. “Most of it can go to your checking account as usual, but you can shunt some of it to a savings account.”
The advantage of this approach is that if that money is out of sight, out out of mind, so you aren’t tempted to spend it. Or, as Dvorkin puts it, “Out of sight is out of mind — and then out of debt.”
4. Pay Your Bills in Advance
In some cases, you might be able to pay your bills in advance. This could be another smart way to use your bonus, especially if you are worried you might spend it on something you don’t really need. There are more bills than you might realize that you can pay in advance. Lyle Solomon, principal attorney at Oak View Law Group, provided several options. “Examples include streaming services, your gas bill, and annual homeowners insurance,” Solomon says.
Solomon further detailed the benefit of this approach. “The advantage of doing so is that you can free up some of your monthly cash flow, which you can then put towards savings or something frivolous and fun you wouldn’t ordinarily indulge in.”
5. Improve Your Home’s Energy Efficiency
“Are you aware that making your home more energy efficient may qualify you for federal tax incentives?” Solomon asks. “It includes upgrades to doors, windows, insulation, and air-conditioning and heating equipment.” He also notes that efficiency upgrades can increase your home’s value.
Improving your home’s energy efficiency is an expense that can pay off in the long run. Solomon recommends replacing incandescent bulbs with compact fluorescent lamps (CFLs), which will lower your electricity costs. Other ideas include weather-stripping your windows or replacing them with more energy-efficient upgrades.
6. Reward Yourself
While you may not think of it as a savvy money move, rewarding yourself can also pay dividends by improving your mental health. “While being financially careful is always prudent, remember to thank yourself for your efforts!” Solomon says.
He continued by suggesting, “Take that tropical vacation you’ve always wanted. Make reservations for that swanky spa day you’ve been coveting.”
Of course, the overall emphasis should be on improving your finances, but spending a bit of your hard-earned money is hardly the worst idea. Rewarding yourself every now and then will make you feel better about yourself, especially if you have been itching for a spa day.
7. Gain Equity, Whether Financially or Personally
One last move is to gain equity in your life. We usually think of equity in financial terms — such as by building equity in our homes or investing in the stock market — but you can gain personal equity, too. Jonathan B. Fishbeck, founder and CEO at EstateSpace, recommended this move. “Look to gain equity financially or personally, which could be that home improvement or a simple vacation to help improve your quality of life.”
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