March 24, 2022

Getting a raise? Here's what you can do next

A version of this article originally appeared on ThriveGlobal.

For many workers, the start of a new year is often a time for performance reviews and planning discussions with their managers. For some, it's also an opportunity to negotiate pay, and research suggests that the odds are in workers' favor this year. The Conference Board projects that companies are budgeting a 3.9% increase for wages in 2022, the largest increase since 2008. 

When most people see a shiny new number in their bank account, they start thinking about ways to spend the extra cash. It's great to treat yourself now to a little something special, but don't forget about your long-term goals. If you recently earned a raise or you're expecting one, take a look at your whole financial picture and make sure to tackle some of the essentials as part of your plan. Not sure what to do, or what comes next? Here are some suggestions.

Don't leave money on the table  
If your company's 401(k) offers a matching contribution, focus on putting enough in the plan to get that full match. This is one of the best deals you'll ever find and that's why it's your first priority.

Pay down high-interest debt 
If you're not on top of your credit card payments, you could be spending a lot of your budget on interest each year. A salary boost is an opportunity to help pay down that debt. If you have more than one card, start with the one with the highest interest rate and work to increase your monthly payments on that one until your balance is zero. Then move on to the next card. And of course, always be sure to pay the minimums due each month on all debt to avoid any penalties.

Save for emergencies 
Accidents, home repairs, and other unforeseen expenses are stressful, but you can take steps to prepare. Dedicating part of your salary to saving for emergencies can put you in a much better position to face the unexpected. One rule of thumb for your emergency fund is to aim for an amount that covers a few months' worth of living expenses. That may sound like a daunting number, but start small and do it through direct deposit right from your paycheck. This can help you avoid borrowing or tapping retirement funds to pay for financial surprises.

Keep saving
The IRS sets an annual limit for how much you can save in your 401(k) plan. The maximum for 2022 is $20,500, up $1,000 from last year and $27,000 if you're 50 or older. If you're saving less than that, consider increasing your retirement savings rate, even if you're already getting the full employer match. Bumping your savings rate up one or two percentage points can make a big difference in the size of your nest egg over time. If you're able to hit the annual contribution limit and can afford to save even more, consider funding an individual retirement account (IRA) or health savings account (HSA) to continue working toward your long-term goals. 

Everyone's priorities are different, so assess your full financial situation and take actions that best align with your plan. Learn more about these steps and other savings considerations here.