What Will You Do with your 2020 Raise?

Credit Cards, Emergency Fund, Retirement, Saving, Work

October 24, 2019

A recent survey of employers says they expect the typical raise next year to be around 3%. I hope you are the rock star who lands an even bigger pay increase. But, 3% is good when you consider that the general inflation rate is still stuck below 2%.


What I worry about is that you may waste your next pay raise. If you don’t have a plan for how you will use that extra income, what’s likely to happen is that when you get the raise, you just spend more.


Pre-planning is crucial. I want you to write down your plan for how you will use your 2020 raise.


My top three strategies:


    1. Increase your Emergency Savings. The current outlook for the economy is that it will continue to grow in 2020, though at a very slow pace. While the expectation is that we won’t have a recession in 2020, the odds are higher the longer we look out. It’s already been a very long 10 years since the last downturn.


    If you don’t have a large emergency savings fund, I want you to spend 2020 making this a priority. If you don’t already have an automatic direct deposit that moves money from your checking account into a separate savings account, get it in place now. Don’t wait for your raise. Start making monthly deposits right now. I am confident you can find at least $50 to $100 a month to save if you review your spending for wants vs. needs. Then, when you get your raise, calculate how much bigger your after-tax paycheck will be. Increase your automatic monthly savings by that much.


    2. Boost your retirement savings rate. If you are not yet saving 12% to 15% of your income for retirement, use your raise to boost what you contribute to your workplace retirement plan, or a Roth IRA. If your workplace plan offers a Roth 401(k) or Roth 403(b) you can do all your saving there, if the plan offers low-cost funds to invest in. If there’s no Roth 401(k), I still want you to contribute to the workplace plan if there is an employer match. You never want to pass on that great bonus! But consider contributing only enough to earn the maximum match and then do additional retirement saving in a Roth IRA.


    3. Pay down your credit card balance.  There is never, ever a good time to pay interest of 17% or more on a credit card balance. As I explained earlier, the odds of a recession occurring after 2020 are rising. Getting rid of credit card debt before a downturn will give your household more breathing room to handle a layoff or reduced hours.


Want to learn more about saving for retirement with your 2020 raise, listen to the Suze School: Investing for Retirement episode of my podcast Women & Money.

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