Bigger Pay Check? Here Are 6 Money Moves To Make When You Double Your Salary
Whether you received a substantial salary increase, experienced success with your side hustle, or secured a fantastic new job with a higher income, your hard work has paid off. Congratulations on this achievement!
Now that you’ve got the big paycheck, what should you do with it? Increased earnings can be a blessing and at the same time a curse.
Where many people go wrong
When people double their salary, they often make financial mistakes that can impact their long-term financial goals. Here are some common areas where people can go wrong:
- Lifestyle inflation: One of the most common mistakes people make when they receive a salary increase is to increase their spending to match their new income level. While it’s natural to want to enjoy the fruits of your labor, it’s important to avoid lifestyle inflation and maintain a budget that aligns with your long-term financial goals.
- Not saving enough: With a higher salary, it’s important to increase your savings rate. However, many people fail to save enough and continue to live paycheck to paycheck.
- Failing to plan for taxes: Higher income levels often come with higher tax rates. Failing to plan for taxes can result in unexpected tax bills and penalties.
- Neglecting retirement savings: With a higher income, it’s important to increase your retirement savings contributions. However, many people fail to do so and miss out on the potential benefits of compounding interest.
- Not investing wisely: Investing can be an effective way to grow your wealth, but it’s important to invest wisely. Many people make the mistake of investing in high-risk, high-reward investments without understanding the potential downsides.
- Not seeking professional financial advice: Financial planning can be complex, especially when dealing with a higher income level. Failing to seek professional financial advice can result in missed opportunities and costly mistakes.
What you should do
In retrospect, here’s how you should act after getting that increment you have worked so hard for.
- Increase your savings rate: With your new income, you should consider increasing your savings rate. Aim to save at least 20% of your income and allocate it towards an emergency fund, retirement, and other financial goals.
- Pay off debts: If you have any outstanding debts, consider using some of your extra income to pay them off faster. This could include credit card debt, car loans, or student loans.
- Invest in the stock market and money market: Investing in the stock market could be an effective way to grow your wealth. Consider investing in a diversified portfolio of stocks or mutual funds to reduce your risk.
- Consider real estate: Real estate is another investment option to consider. You could use your extra income to save for a down payment on a rental property or invest in real estate investment trusts (REITs).
- Increase your insurance coverage: As your income increases, you may need to increase your insurance coverage as well. Consider purchasing life insurance, disability insurance, and other types of coverage to protect yourself and your family.
- Enjoy the fruits of your labor: Finally, don’t forget to enjoy the fruits of your labor. Consider treating yourself to something nice, like a vacation or a new piece of technology, but be sure to stick to your budget and avoid overspending.
Big money wins, like doubling your salary (or getting any big raise), don’t come along every day. Be sure to celebrate this victory by doing something that you’ll remember. Take your special someone on a date, dance in an elevator, take a friend out for lunch, or rent the paddle board when you hit the beach.