Has your income increased? 5 steps to invest your money

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Give your extra money the best chance to improve your life.

Key points

  • If you’ve recently seen a pay rise, it’s time to sit down and reassess your finances.
  • Add your new earnings to your budget and see how you can increase your savings as well as your entertainment spending.
  • Think long term and decide what you want your money to do for you in the future.

Living paycheck to paycheck is the worst. You can never afford to get ahead, and you may dream of what you would do if you ever left that lifestyle. Chances are you wouldn’t dream of updating your budget, switching bank accounts, or still having to carefully consider your spending—none of these tasks are sexy.

But if you’re starting 2023 with a higher salary, thanks to a raise, job change, or side hustle, it’s incredibly important to look at all of these moves and more. After all, you have the opportunity to make some positive financial moves with the extra cash. Here’s what you need to do, step by step, to make sure your new salary really benefits your life, both now and in the future.

Step 1: Reassess your budget

No one likes the “B” word, but if you really want to know where your money is going month after month, a budget is essential. Personally, I think it’s fun to customize the “income” row in the spreadsheet I’m using, while keeping the “expense” rows the same. I see how much I’ll have left over each month after paying rent, utilities, and the rest of my bills. If you really don’t like budgeting or just want to make it a little more interesting, consider using a budgeting app to spice up the process and get helpful tips and advice along the way.

Now that you know how your income compares to your expenses, you can move on to step two.

Step 2: Pay off the debt

Ok, stay with me here. Paying off debt probably wasn’t part of your fundraising fantasy, but it really should be. If you’re carrying high-interest debt like a credit card balance, you should prioritize paying it off with the extra money you’re bringing in now. Credit cards charge high interest on transferred balances; their average APR reached 19.04% in November 2022. There are several ways to pay off your debt. Personally, I’ve had a lot of success with the debt snowball method, and if you’re someone who likes to make quick progress, I recommend it. If you have that bigger paycheck, get started today – you won’t regret being free of high-interest debt.

Step 3: Open a new bank account

How would you like to make even more money on your money? Only 21% of American adults currently have a high-yield savings account, and now is a great time to join those ranks. The best high-yield savings accounts currently pay 3% or more in interest, so the money you stash away in one will generate even better returns than if you left it in your checking or even traditional savings account. So increase that “savings” line of your budget and transfer that extra money to a new bank account to enjoy the wonder of compound interest.

Step 4: Beware of ‘Lifestyle Attacks’

A word of caution, before you start splurging on shopping with your newfound income: Don’t fall victim to the fake lifestyle. A lifestyle fail is when your earnings increase and so does your spending, leaving you living paycheck to paycheck despite making more money. This is where reevaluating your budget can really help. You can build a larger number for fun, guilt-free spending. This way, you have the multiple benefits of earning more money, instead of going back to the same situation as before.

Step 5: Focus on your long-term goals

Finally, start setting some long-term goals and keep them in mind whenever your money management starts to slip – or you feel the urge to make a big purchase without really thinking about it. Your goals can be anything you want – early retirement, going back to school, a big vacation, buying your dream car. For me, it’s buying a house. Think often about your big money goals. Write them on sticky notes and leave them where you will see them. If you keep them in mind, you are more likely to do what it takes to achieve them.

Congratulations on the salary increase! With these five steps, you can ensure that your money benefits you and your life to the maximum extent possible. After all, isn’t that what it’s all about?

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