When you work hard and get a promotion, it's an awesome feeling. However, this moment is also an excellent time to make some financial changes that can help you better plan for your future. Learn some immediate steps you should take when you get your next promotion.
Calculate Your Tax Penalties
Make sure you don't make any plans with your new income until you calculate your tax penalty. So often, people get hung up on the raised figure without first thinking about how much they will actually bring home. For example, consider a person earning $75,000 a year who receives a $15,000 raise.
Depending on their marital status, the extra money could up their tax penalty from 22% to 24%. As a result, they will only see a portion of this $15,000 in their take-home pay. Until you know how much you'll actually see in your paycheck, you will have no idea how you will be able to make the money work for you.
Avoid Large Purchases
One of the worst things a person can do when they get a promotion is to drastically change their lifestyle, such as buying a bigger home or purchasing a luxury car. While there is nothing wrong with these purchases, there is also nothing wrong with living below your means.
If you max out your expenses now, you might lower the amount of income you have available to you once you decide to retire. It's best to wait for a while a plan your purchases so that you have more time to think it through rather than fall victim to an impulse buy.
Increase Your Savings
A promotion at work is an excellent time to increase the amount of money you're saving, especially if you were able to live comfortably off of your previous salary. Consider increasing your savings by at least 1%. For a person earning $60,000 a year after their promotion, a bump from saving 8% of that to 9% of it will yield an extra $600 in savings every year.
When you calculate growth over the years, the extra savings can also increase your retirement income. You should also use this opportunity as a way to max out your employer contributions for 401k. For example, if the company will match your contributions dollar-for-dollar up to 5% of your gross pay, but you're only saving 4%, you should use the extra money from your promotion to raise your contribution to 5% to earn more.
If you're not sure what you should do, speak with a financial planner. A planner can help you define your goals, outline how you'll achieve them, and help you execute them.