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Making the Most of an Annual Salary Increase

Earning a raise at work is a great achievement. More money is always helpful, and a raise makes you feel like a valuable part of your company. It is tempting to take a salary increase and spend it as you please. While it is important to enjoy the success of your hard work, consider how you can benefit from your increased income.

With the assistance of a CERTIFIED FINANCIAL PLANNER™ professional and a little planning, a salary increase can become an opportunity to make a long-term impact on your quality of life. Here are eight ways to spend your raise wisely.

  1. Contribute to Your Retirement Plan
    A salary increase is a great time to kick-start your retirement savings. If a 30-year-old invests an additional $1,000 per year in stocks, the future value could be $442,593 by age 70. For a 50-year-old, the future value of $1,000 per year could grow to an impressive $57,275. Pre-tax retirement account contributions grow tax deferred. You could tuck away the salary increase and not have to worry about any income tax liability on the money this tax year.
  2. Save for a Long-Term Goal
    It is easier and more rewarding to save money when you have a goal. Consider what is meaningful to you. Whatever your goal, you can make progress by creating an investment account and contributing regularly. If your goal is more than 10 years away, you might want to consider investments subject to short-term volatility, such as stocks, mutual funds, or ETFs.
  3. Invest in Your Education
    One of the best ways you can increase your long-term financial success is by investing in yourself. Some of the ways you could invest in your education are with a new certification, a degree or designation relevant to your industry. See if your employer will help you pay for it! Many employers offer tax-advantaged education payment plans.
  4. Pay Down Debt
    If you have debt, get rid of it! An annual salary increase can go right into a debt-paydown plan. If you have multiple lines of credit, with balances owed, you will want to talk with a CFP® professional to help you prioritize which loan to pay off and when. There is no one right way to pay off debt, and often, the best results are achieved with a coach in your corner.
  5. Spend Some of it On Yourself
    Create a monthly budget and dedicate some of your salary increase to things you enjoy. By investing in what is meaningful to you, whether it be going out to a restaurant, seeing a movie, or taking a trip, you will be able to enjoy your life and reduce stress.
  6. Boost your Emergency Savings
    One way to know if you have enough money tucked away for an emergency is to imagine the worst-case scenario. Usually, six months to two years of your living expenses are reasonable amounts of money to keep in safe (very low or zero interest) accounts at a bank. With your emergency savings intact, you can feel confident in your ability to get through unexpected challenges.
  7. Shore Up your Insurance
    A salary increase is a great time to think about whether or not you have the right amount of insurance for your situation. Although insurance is never the most exciting conversation, it may be the one that your CFP® professional wants to have first.
  8. Establish a Health Savings Account
    As we age, we spend more and more on our healthcare expenses. Plus, healthcare expenses go up at (what appears to be) an ever-increasing rate. A Health Savings Account works with a high-deductible health insurance plan. You can tuck away money as an individual, or twice that amount for a family.

To find a CFP® professional to work with, and for more information on ways a CFP® professional can assist you in reaching your financial goals, visit

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