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How to Make the Most of Your Salary Increase

Jun 21, 2018 5 min read Mike DiChiara

Key Takeaways

  • Calculate your net pay before doing anything.
  • Follow the rule of threes: save/spend/give.
  • If you’re in debt, focus on paying it off.


Congratulations! Your hard work has paid off, and now you’re earning bigger bucks. Aside from serving as a clear indication that your employer appreciates your contributions, a salary increase can also put you on the fast track toward achieving your financial goals.



Your first (and wisest) instinct may be to add more to your savings — but make sure you still have some fun! Splurge on a date night, raise a toast to yourself and take a little time to pat yourself on the back.

If you want to enjoy your raise while also using it to improve your financial stability, here are a few steps to follow.

Figure out what your net pay will be

The average raise in the U.S. for 2018 is 3.2%. Whether you earn this amount or greater, you should calculate how much you’ll actually be taking home every month. While your pay increase will certainly be welcome, the amount you’re told and the amount that appears on your paycheck will differ. Determine just how much more you’ll be ringing in, then decide what to do with your new funds.

Save, spend and give

There’s no simpler way to manage money than the save/spend/give method, where 1/3 of your newly earned income goes into each bucket.

There are many potential places to tuck away the portion of your raise that you save, such as an emergency or savings account, a college savings plan or a retirement account. Once you’ve decided where you will put your newfound savings, set up your checking account to automatically deposit the funds, that way you’ll steadily add to your savings on a consistent basis.

Saving money is paramount, but be sure to leave some to spend as you please, completely guilt-free. Take a vacation, spruce up your home décor, splurge on a new wardrobe, or just head out and celebrate. You’ve earned the money, and you’re entitled to spend what you earn. Put any thoughts of guilt aside and revel in the rewards of a bigger paycheck – just remember to be mindful of what you spend.

Donate the last third of your raise to a worthy cause – whether it’s a charity, a house of worship or a loved one in need. Not sure where to start? Guides to charitable organizations, will give you some ideas. There is no shortage of people and organizations that could benefit from your generosity.

As an added benefit, charitable donations are tax-deductible, and according to Business Insider, giving to charity actually makes people happier!

Pay off your debts

If you’ve got a cloud of debt hanging over your head, using money from your raise is a great way to pay it off and get closer to living debt-free. Creating a debt repayment plan can help you figure out how much of your raise can be devoted to paying off debts, and will put you one step closer to eliminating debt completely.


What you can do next

Before you do anything, reevaluate your financial situation to see how much you’ll be earning, and where that extra income can go. From there, you can begin mapping out precisely where to spend and where to save.


Mike DiChiara is a Content Manager at Prudential.


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