Suze Orman TwitterSuze Orman FacebookSuze Orman YouTubeSuze Orman LinkedIn
View Blog & News List

The Danger of Getting a Pay Increase

December 03, 2015 at 12:00 AM

As year-end approaches, I know that’s when plenty of you will be sitting down with your manager for a year-end review. I sure hope there’s a pay raise involved.

Given how stingy raises have been since the Great Recession, I want to make sure that you don’t blow it. Literally.

3 Steps to Making the Most of a Pay Raise

  1. Don’t spend a penny. I totally understand that given how hard you work, it’s only natural to start thinking about a splurge purchase when you get a raise. Yes, you deserve a splurge. But I happen to think you deserve even more: less worry about your finances. Please resist the temptation to spend your raise-especially around the holidays-and make it a bigger priority to use the extra cash to build your financial security.
  2. Immediately earmark at least half of the raise for your retirement savings. For example, if you receive a 4% raise, I want you to commit to immediately siphoning off half of that-2% of your salary-to increase what you are saving for retirement.

    If for some reason you aren’t already contributing enough to a workplace 401(k) to get the maximum employer match, that’s obviously where you want to do more retirement saving. But if you’re already contributing enough to get the maximum match, I think you should focus the next $5,500 of your annual retirement savings on a Roth IRA. (If you are at least 50 years old you are allowed to contribute an additional $1,000 each year, so in 2016 your maximum contribution is $6,500.) If you are already maxing out on the Roth IRA, then by all means increase your contribution rate to your workplace 401(k).

  3. Pay down credit card debt, ASAP. The average interest charged on credit cards these days is around 15%. (And if you’ve somehow triggered a penalty rate you can be paying nearly double that rate.) Paying off that debt is the equivalent of earning a 15% return. Just to be clear: that’s a seriously great return on your money.

  4. Boost your emergency savings. If you’ve yet to sock away at least eight months of living expenses in an emergency fund, increase the amount you’re having automatically sent to your savings account each month. 

If you have all those goals polished off then you have my permission to use the remainder of your raise on a well-earned splurge.

Tag Cloud

10% donate to charityhigh FICO scoregift up to 14,000financial aidallowance taskRevocable Living Trustinsurance mistakenear historic lows15-year refinance deal10 year repayment plan Post-Divorceincrease retirement savingsage appropriate choreNew York Lifehome buying budgetbest interest ratesfile taxes quicklyBill and Pennyreduce withholdingStudent Loan20% down paymentpremiumclosing feesjanuary billsget the most out of social security get credit cardStudent DebtFixed Rate Mortgagebetter termsFederal PLUS loanconsider roth 401(k)401Kpublic service loan forgiveness program740 credit scorephysical healthschedule vacationdon't extend mortgage Holiday Shoppingpreexisting condition not coveredRevocable Trust20 to 25 times annual incomeHolidayWashingtonnot enough life insuranceloan big picture monthly benefit savings pleasureSatisfyingdon't blow tax refundpay credit debt ASAPinterest on student loanscar leasingVeterinary Schooladjust allocations Commencementanticipated salaryInfluentialslong term goalbudgetadvice for college graduatesHigh Credit Scoreco-sign Employer Matched Contributionincrease emergency savingsTeachemotional stakesUniversity of Floridacut monthly cellular billno negativitydental insurance max benefit coveredSuze is my biggest mentorwomen long term caredeath benefit needs for familyovercome financial fearsalways use all paid time offmonthly dental insurance premiumFinancial AdviceOne Wallet At A Timeholiday spendingmoney-aware childGay CouplesYoung Adult FICO credit score credit card mortgageone annual fee30 year mortgage Mass Mutualrequired disclosurerepay student loansHoliday SeasonBaby Boomerskids schedule paymentsbill paying prioritiesExhibitionBankcar loanRoth 401(k)confident of solutiondon't buy wantssocial security not going brokelet them have 50% controlJose Rodriguezsame sex marriage band end Floridaadult childrenpublic service career student loan repayment add teenmarriage inequalitysmall changes successUniversity of Illinoiscredit reportcontribution Influential Celebritytake actionescrowlong term care3 bucket approachfinancial independencepowerfulno tax on withdrawlsritual schedulestudent loan repaymentprotect loved ones setup automatic savings withdrawFinancial Gift CliffLegal GuardianSchool of Social Workhome ownershiptoo expensive schoolsave moneyno late fee don't charge a pennyrent vs buyFRAbetter loan ratesMortgage Credit Availability Indexwomen live longerMust Have Documentsonly refinance if it paysinsurance yearly reviewcredit utilization rateSelectQuote.comSpendingdon't spend IRA contribution gifted moneyDurable Power of Attorney for Health Carebuying car 2016pay off debtSelfishForbes Top 10Eric Dodge dental discount planraise insurance deductibleno life insurance financially irresponsiblecut monthly cable billstudent loan repayment planlife insurancelower mortgage interest8 Rulesstudent loan debtlower rateautomatic paymenthigher insurance deductibleemergency fund high premiumsfour steps to retirement savings require chore in exchange for allowanceVital DocumentsCivil RightsFinal Goodbyewomen longer life spanproperty taxkeep a scheduleteach your child good money habitsCNBCreduce interest ratebad decisionsaffordable premium3 step financial road mapretirementstandard deduction stretch out haircut appointmentsmake saving a pleasure6 month waiting periodfinancial fearsshop online guaranteed level term policyfinancial goal phrasebest loan deal commit15 year mortgageprotect your familyultimate compounding giftcompare monthly expensesbig results low credit scoreSuze Orman ScholarshipPersonal FinanceMarlo Thomasmultiple lendersmeet monthly college graduaterolloverswitch to roth 401(k)Staffords this year have a fixed 6.8% interest ratewomen outlive menmortgage interest tax deductioncan you afford itfocus on needspoint cost offset by savingsFinancial Power of AttorneyBankruptcywrite new goalcollege studentCiti Simplicity Card debit cardno sneaking in feesget health insuranceprovider of financial supportonly offered while employed retirement accountsshorter payback period20% down payment avoid feesbuy down Long Term Care shoppingsecured cardpay more than minimumlow-cost index mutual fundloan is giftbalance transfer valentines dayRetirement Savingscar buying mistakes401(k) Contributionsdangerous money seasonFederal Stafford loanpercentage of women widowed 75-84eight month living expense doctors in networktraditional vs roth 401(k)television hostoverspend on nights outborrowing plan loan no longer than 36monthsLTCi ASAPstandard rateno interesthome loan credit score below 740 Sandy Hook Elementary SchoolPay Off Debt Before RetirementEasy Life Insurance term life insuranceenjoy saving no fee transferpresident Obamatax refund fraudinitial tax break three year car loanback-to-school budgethighest possible benefit3% debt transferred home budget after tax costtax ID theftfederal student loan deferment Minor Children know before you oweLoveFederal Funds Rateignore 6 month grace period origination feesdepreciating asset no retirement funds for down paymentprotect dependent WillFinancial Systememployer funding HSAuniversal college accessgift grandchild IRA contributionCredit Card Interest Ratereal estate markethome buying mistakesretirement planlowest cost fund optionpush yourself to save more for retirementpercentage men widowed 75-84permanent life insuranceoverspend on dining outHDHP's are not badno apology!00% tuition paid2017 Taxesmortgagesummer job match income 2016 adjust estimated taxhealthy retirement weightwaive home inspection bidbetter loan dealssavingsapproved medical 100% tax-freecouple financeswould you decline a bonuspositivelearn good financial choicesleave a legacyallowancedebtiffy incomeMotherSuze changed my lifeHDHP'sspring summer Lifestylelower interest ratereal estate mistakeslive below your meansunexpected expenseNew american Dream life insurance name trust as beneficiaryreduce monthly paymentfinancing car College of Veterinary Medicinelong-term care PBS SpecialPrime Rate Increaseclosing disclosure3 savings buckets costly insurance mistakeAuto Savings confidentSandy Hook PromiseHSA tax savingsget over life insurance phobiaForeclosurelower premiumSuze Ormannegotiate points with bank or sellerMost Influential Celebrities Listhealthy retirement blood pressureFinancial Awarenessannual cost of living adjustmentincreased auto insurance premiumnot gender specific 2015 record year car salesidentity fraudFree Debt Eliminatorlousy investmentCPI-Wfinancial argumentspay 100% cashHDHP automate student loan paymentsConventional loan PMIplanmax employee matchGoodbyeLTC shoppingloan necessitycostly legal stay positivefocus on new truth full retirement agedo not pay allowance for good behaviorno waiting periodcontribute household expenses don't do five year car loanstudent loan repayment estimatorgift not loanStudent Debt Crisiscredit cardsave be true to yourselflong-term care premiumsfile asapHow To Build Creditpay interest while in schoolfraudulent returncharges on credit cardAccuQuote.comteach importance of helping othersGraceAlarm ClockCory Bookercommunity bankworkaholicdental savings planverify wellness screening and programsidentity theftexercise reguarlymanage student loansAdequate Auto and Home Insurancemortgage disclosureheartachestore credit cardsno splurge Forbesshort term goal loved ones dependent on incomezero rate transfer dealsdear suzeGiftsLong Term Care premiumsHDHP/HSAFICO Scoremax employer matched 401(k) contributionPhyllis Shelton expert long-term caregay marriage ban end Florida compare provider pricinghealthy youitemized deductiondebt freecalculate dependents annual income needsGay Rightsmobile appteensunsubsidized Stafford loanfamily save at least $100 monthlyChanging LivesEmergency SavingsRichhigh credit score discountresponsible with moneyAmy LacyetPrime Rate Rise 2015taxesARM Cautionpaying for collegeMoneyat worst still pay 75% benefitresponsibleTelepicturesmortgage brokerHDHP's are good for yougrandparent IRA contribution bad retirement planningAARP Social security calculatoralternative FICO scorecommunity college4 Must Have Documents Newtowndream schoolone credit cardchildren's bookSuze Orman's Money Warsdoctor no longer in networklow mileage discountpeace of mindfinancial concernsecure creditmoney vowsmaintain standard of livingback door Roth IRA8 month emergency fundARM20% equitymarriage financial responsibilitygrandchild summer job IRA contributionearn allowancetitle insurancedon't defer interest paymentsterm insurancecomparison shoppingteens and moneyretirment savingsis it kind?home buying seasonBeautyAshley Springerstrained relationshipLTCoverspend on giftsdon't cover cosmetic dentistrypay high rate off firstFinancial Awareness Video Festivalquick closingbuy home you can affordclosing costs 2% of loanCredit scoreRetirement Incomeverify retirement plan with HR or plan sponsorlower overall drug costinsuranceis it necessaryinterest capitalizationprescription tierETF's50 over 50special saving accountvalue moneysame-sex marriageSave Us MoneyAARPCommunication Skills 40% toward financial goalFundsschool buy homestaycationUrbana-Champaignderailed planbe good exampleSuze approvedlow down paymentsocial security never insolventspeak new goal2015 financial roadmapbreakdown projected monthly housing costface your financial feardo you need life insuranceFinancialraise deductiblesGiftOverspendingFinancial Cliffpay down car loan2016 adjust withholdingcnbc alarm clockAmericans don't use all paid vacation timenew car8 month safety netborrow each year, capitalization is going to pile up Warner Bros Television Groupis it necessary?19 years cash flow problemletter to suzeStock Investmentsage appropriate goalshousing marketFiscal Responsibilitydangerous retirement planCredit Card Rate Increasekid borrow firstreplace permanent life insurance with termreferrals high deductible health care plandeath benefit 20 to 25 times annual incomeThe Suze Orman ShowInterestFinancial Solutions For Yougraduationautomatic withdraw to savings buying a caremergency fund savingshome related tax break bonus high down paymentcost of capitalization calculatornon conventional routeis it true? 20 year level term higher monthly paymentno private loanLong Term Care Insurance worst financial mistakepaid in fullcreate new truthrefinanceunder 18 financial giftyours, mine & oursno private loansHigh FICO Score = Better Ratesocial securityswitch to spouse coverageretain separate credit cardsbe kind to yourselfsocial workaffordabilityincentives for health care wellness screeningcredit managementburn outemployer offered life insuranceraise your deductibleCOLAincrease retirement contribution rateprotect and provide for minor child don't derail retirement savingssidelinedFinancial EducatorFHA loan feesdon't use allowance as bribeHeartroth iraavoid burn outMoney-Savingcredit unionjuggle multiple financial goalswives should be involved in retirementhome insurancemental healthchildren under 18studentMoney Marketbecome member open enrollment review refundFICO at least 720paid vacationrising home pricespurely financial standpointSuze Orman spouse Kathy Travishealthy aging Wall Streetpay down student loan debtdon't ignore open enrollmentInvest for savings growthUS Tax Code

View Blog & News List
People First. Then Money. Then Things.
Connect with me on Facebook Connect with me on YouTube Connect with me on Twitter
© 2017 Suze Orman Media Inc. All rights reserved.
 |  Search  |  Sitemap  |  Privacy  |  Terms
Sign Up For E-mail Offers
Open Panel
Close Panel