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How to Make the Most from a Raise or Bonus


Happy 2022! There’s nothing like walking into a new year –– the renewed energy is palpable even if you don’t celebrate it in a particularly festive way. Whether you stayed up until midnight, ate 12 grapes on the hour, dined on black-eyed peas, or stayed in for a quiet night, a new chapter is beginning.

For many in the business world, the new year signals a time of re-evaluation, and I find that many of my clients and friends find themselves either receiving a well-deserved raise or an EOY bonus for their hard work over the previous 12 months. Both are incredibly exciting and worth celebrating –– but often, with any increase in income, there tends to be the lingering question after –– what do I do with it?!

Consider the following.


Dear Tori,

I was so excited to find out at the end of last year that I was getting both a year-end bonus AND a raise! I’m obviously thrilled but feeling a little shell-shocked and unsure how to handle this new influx of cash. I really don’t want to mess up.

Let’s get into it!

1. Focus on Debts, Savings, and Retirement

Turn your attention to your complete financial picture. A raise/bonus can be pivotal in taking your savings, retirement, or debt-payoff game to the next level.

Ask yourself what your financial priorities are for the new year –– are you hustling to pay off student loans or credit card debt? Do you want to max out your Roth IRA and 401k? Open a brokerage account? Save for a down payment? List out your most audacious money goals for the year and then rank them.

Personally, I’d prioritize a 3-6 months emergency fund first, then any debt I have over 7% (think credit cards and certain personal loans). The emergency fund should always be your #1 financial priority since it creates a solid foundation for you to start aggressively paying down debt, investing, or saving for other goals.

If you’ve got your emergency fund in place, consider throwing some of your extra pay or bonus cash at your debt. If you haven’t already, utilize either a debt snowball or debt avalanche method (my preference is the avalanche). Throw that extra money at the first debt on your list by the amount owed (snowball) or the highest interest rate(avalanche).

Read More: What is Debt Management?

A decent bonus check can really help you take a sizable chunk out of your debt. One big note on this one –– make sure this hunk of cash goes towards the loan’s principal. You may even have to get on the phone to make sure this happens. Paying down the principal is one of the fastest ways to eliminate debt.

If you’re all set on debt, turn your focus to saving for big goals or retirement. Section out a portion of your bonus or raise to go into your investment accounts, or for short-term goals a high yield savings account.

Read More: How Excess Cash Can Hinder Your Portfolio — Even in Retirement

2. Treat Yourself

When you pay yourself, part of that is treating yourself! This will look different to everyone, but for me, it looks like dedicating a portion of my bonus/raise to some self-care or a treat. Maybe you’ve been dying for a massage or a fitness tracker or even a new plant to spruce up your work from home space. I think it’s important to celebrate these wins with something meaningful to us. It doesn’t have to be a big purchase, either!

If you are getting a raise only, factor in some of that extra pay per month to go towards your “wants” value category (i.e., travel, dining out, shopping, etc.).

3. Revisit Your Budget

Anytime you have a change in your finances, you should immediately head over to your budget and make sure you have a plan for the change. We worked through some of this above with saving/investing/debt payoff, but there’s a lot more to your budget than these categories.

Try It: Monthly Budget Calculator

A raise can mean you finally have the money to pay for a gym membership you’ve been eyeing or even move to a bigger apartment. Maybe you’ve been avoiding coffee dates with friends and now have the wiggle room to add them in again. It’s really up to you how you decide to divvy up these funds among your expenses.

Word of Caution: Watch for Lifestyle Creep

Raises and bonuses are incredibly exciting, but it’s wise to be mindful when there’s a sudden change in your financial situation. Lifestyle creep is a common problem that often goes unnoticed until you realize that you’re paycheck-to-paycheck again.

Lifestyle creep refers to the idea that as you make more, you spend more. You move to a bigger home, go out to eat more, buy a more expensive car, etc. It’s incredibly common to do, especially with the way that we put an emphasis on keeping up with the Jones’.

Should you treat yourself and make incremental changes? Sure! But do you have to every time you get a raise or bonus? No way.

One of the great opportunities a raise or bonus affords you is to get ahead –– and if you fall into the trap of lifestyle creep, you’ll always feel stagnant, even if you are making more money.

To break it all down as simply as possible, your main priority when you get a raise is to make sure you can get ahead and stay ahead of your personal finances. It’s prioritizing well, spending less than you make, and thinking towards the future (while still having a little fun in the present).

In my own life, Personal Capital is the financial tool I check daily for tracking my net worth and my progress towards goals like retirement, debt payoff, and (yes!) saving that first $100k.

Get Started with Personal Capital’s Free Financial Tools

Personal Capital compensates Tori Dunlap of Her First $100k (“Author”) for providing the content contained in this article. Compensation not to exceed $500. Author is not a client of Personal Capital Advisors Corporation. Additionally, in a separate referral arrangement between Author and Personal Capital Corporation (“PCC”), Author is paid $70 and $150 for each person who uses Author’s webpage (www.HerFirst100k.com) to register with Personal Capital and links at least $100,000 in investable assets to Personal Capital’s Free Financial Dashboard. As a result of these arrangements, Author may financially benefit from referring potential clients to Personal Capital and/or be incentivized to present blog content that is favorable to PCC. No fees or other amounts will be charged to investors by Author or Personal Capital as a result of the Referral Arrangement. Investors that are referred to PCC and subsequently subscribe for investment advisory services provided by PCC’s affiliated adviser, Personal Capital Advisors Corporation (“PCAC”) will not pay increased management fees or other similar compensation to Author, PCC or PCAC as a result of this arrangement. The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

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