Got a raise? 5 ways to make the most of it.
While a bump in pay might tempt you to loosen up your spending, it is better to think strategically


Congratulations, you got a raise! Now, what should you do with it? While a bump in pay — especially a sizable one — might tempt you to loosen up your spending a little, it is better to think strategically. If you play your cards right, the extra money can be a great launching pad to help bolster your financial future.
Even if your raise does not amount to a drastic paycheck increase, it will add up eventually. "Over time, that difference in income could provide a boost to your lifestyle or be put toward other financial goals," said Nerdwallet.
1. Reevaluate your budget to avoid lifestyle creep
First thing's first: When your income shifts, you will probably think it’s time to expand your budget. But be careful not to take that extra money and fall into the trap of lifestyle creep, where “people find themselves slowly developing a more expensive lifestyle when they get a raise, and often a lifestyle that they may not be able to reasonably afford," said CNBC Select.
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So before you start looking at ritzier apartments or head out on a shopping spree, run the numbers to see how much more you can realistically spend without erasing the new breathing room your raise has afforded you. After a budgeting review, "you might find that it's not in your best interest to increase your spending on nonessentials," said Nerdwallet. Alternatively, "if you’re feeling good about the status of your consumer debt and savings, then you might choose to spend more money on things that will make life more enjoyable."
2. Use the extra funds to pay down any debt
Your bump in pay can also serve as a great opportunity to expedite paying off any debt. However, keep in mind that “some debt can be good, like a mortgage on your home, which tends to have a relatively low interest rate," said SoFi. The debt you'll want to wipe out is any "that carries a high interest rate and doesn’t have a long-term benefit," such as credit card debt.
3. Increase your retirement savings rate
Especially "if you haven’t already, make sure you’re contributing to your 401(k) and taking advantage of your employer’s 401(k) match" with that extra income you've gotten from your raise, said CNBC Select. Your employer match is essentially free money that you do not want to leave on the table, as it translates to your employer depositing money in your 401(k) account to match the amount you're contributing, up to a certain point.
Already maxed out your match? In that case, "you can increase your 401(k) contributions or put more money into your traditional IRA or Roth IRA, both of which offer unique tax advantages," said CNBC Select.
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4. Double down on reaching your financial goals
A jump in income is a great excuse to take a step back and resolidify your top financial priorities. This could mean building up a more robust emergency fund — ideally, you "have a financial safety net of at least a month's worth of expenses, with the goal of working toward three to six months' worth," said Nerdwallet.
Or maybe you've been dreaming of someday making a big purchase like a home or a new car, in which case the extra money can be put toward achieving those goals. Another worthy expenditure is an investment in yourself, whether that's working "with a therapist on what’s keeping you up at night" or signing up for "a continuing-ed class in a topic that has always fascinated you," said SoFi.
5. Give yourself a little room to celebrate your success
Finally, while it pays to be smart about your raise, "you should feel comfortable celebrating your accomplishments," said Nerdwallet, citing Liz Carroll, a financial life and wellness coach at Mindful Money Coaches.
After giving yourself a well-earned pat on the back, it will be helpful to "put up some guardrails” around your reward, such as limiting to yourself to buying "something that equals 5% of the total raise" if you're also paying off debt or "10% of the total raise" if you do not have debt.
Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.
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