Posted: 2:32 p.m. Tuesday, Feb. 19, 2013
That depends on your goals and your current situation. We advisers like to focus on savings and building up your investments, so naturally my first response would be to say to just save your raise.
In reality, you do need to take more time to consider your budget in light of the new raise. Step back and re-evaluate your standard of living before the raise. Ask yourself if you were satisfied with it. Were you able to do what you wanted to? Were you able to save at least a portion of your income for future goals? Did you endure any hardships due to the lower wage?
Then take a moment to consider your short- and long-term goals in light of your current situation. Do you want to save up to travel the world in a few years? Would you like to save up to start a business? How about building your retirement savings or sending kids to college? How far along are you in preparing for and reaching those goals?
After you’ve taken a hard look at the past budget, your current situation, and your future goals, divvy up your raise in your budget based on those priorities. For some, the new money may be needed to go towards deferred expenses such as long-needed home repairs or getting that second car.
That said, do your best to set aside at least some or all of it for those future goals. While they may be far off and it can be hard to be patient in saving up for them, your future self will be very satisfied and grateful that you made the sacrifice today. You’ll also begin to establish strong financial habits for future raises.
So be nice to that future self and you’ll be rewarded.