When my friend Carolina finally received her long-awaited raise, she felt like celebrating. A new purse? A weekend getaway? It was tempting. But instead of going on a spending spree, she paused, took a deep breath, and used that boost in income to completely reshape her financial future. Within a year, she had doubled her emergency fund, started investing in herself, and shaved off thousands in debt. And those are just some of the things that you too can do with your money after a raise.
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If you’re like Carolina, and you’ve just received a raise, you’re probably feeling excited—and maybe a little overwhelmed. The truth is, many of us unknowingly fall into lifestyle inflation, where higher income simply leads to higher expenses. But it doesn’t have to be that way. Here are 10 expert-backed ways to make the most of your raise and build a financial life you’re proud of.
10 Things to Do With Your Money After a Raise
Ok, so this article is not for you to get overwhelmed. The 10 tips I’m about to give you to use your money smarter after you receive your well-deserved raise are simple to put in practice without having a finance background. You just have to focus and resist the temptation of switching your lifestyle dramatically by thinking of all the goodies you can buy with that extra income.
1. Pause and Recalculate Your Net Income
Before you start planning, make sure you know exactly how much extra money you’re taking home. Raises often bump you into a new tax bracket or adjust your benefit contributions.
Use tools like the IRS Tax Withholding Estimator or ADP’s paycheck calculator to see your new net income.
Factor in any changes to your healthcare premiums, retirement contributions, or FSA/HSA deductions.
The new number on your check is just the tip of the iceberg, don’t get too excited. With greater income, come’s greater contributions to the your retirement, healthcare and taxes. So before you make any new moves with your brand-new pay check, you have to understand how liquid you’re going to be after these withholdings and contributions.
This is your true “extra” to work with—and it may be less than you think.
2. Increase Your Retirement Contributions (Strategically)
The easiest way to grow wealth without feeling the pinch? Boost your retirement savings before you get used to the extra money.
Max out your 401(k) match—that’s free money.
Consider opening or contributing to a Roth IRA or Traditional IRA, depending on your income level.
According to Fidelity, increasing your savings rate by just 1% each year can lead to 25% more in retirement funds over 30 years.
Even a small bump now can compound into something powerful.
3. Build or Top Off Your Emergency Fund
Unexpected medical bill? Job loss? Broken car? Life happens. A well-funded emergency fund keeps you afloat.
Aim for 3 to 6 months of essential living expenses.
Store it in a high-yield savings or money market account.
According to Bankrate, 59% of Americans can’t cover a $1,000 emergency.
Your raise is a perfect opportunity to change that statistic.
4. Pay Off High-Interest Debt
If you’re carrying credit card balances or payday loans, use your raise to plug the financial leak.
Focus on debts with interest rates over 10%.
Try the debt avalanche (highest rate first) or snowball method (smallest balance first).
Example: Paying just $300/month toward a 19% interest card instead of the minimum can save you thousands.
Your future self will thank you.
5. Adjust Your Budget and Automate New Habits
Without a plan, lifestyle creep can sneak in fast. Now’s the time to align your budget with your goals.
Use the 50/30/20 rule or 60% solution to rework your categories.
Set up automatic transfers to your savings, investments, or debt payments.
Decide on spending with intention: What do you truly value? You can always use the 30-day rule to assess if you’re really prepared to make any medium to big purchases.
Both Dave Ramsey and Ramit Sethi stress the importance of budgeting, but where Ramsey favors strict control, Sethi champions conscious spending.
Find what fits your style.
6. Review and Upgrade Your Insurance Coverage
A raise often means you’re building a more comfortable lifestyle—one worth protecting.
Check your health, life, and disability insurance. Is the coverage still sufficient?
According to the Social Security Administration, 1 in 4 of today’s 20-year-olds will become disabled before retirement.
7. Reassess Your Financial Goals
A higher income means you can reach your goals faster—but only if you know what they are.
- Revisit your short-term goals (like home upgrades or travel).
- Outline mid-term goals (such as a house down payment or starting a business).
- Define long-term dreams (financial independence, early retirement).
- Use the SMART method (Specific, Measurable, Achievable, Relevant, Time-bound) to clarify each goal.
Raises are rare opportunities to accelerate your vision. If you’re anything like me, I like to assess my goals through vision boards. They’re a handy visual aid to use as a measure of progress or stalling.
8. Start (or Increase) Regular Investing
Once you’ve handled debt and savings, it’s time to grow your wealth.
Open a brokerage account or consider a financial advisor.
Explore index funds, ETFs, or even real estate investing.
Dollar-cost averaging makes investing accessible: automate small contributions from your raise each month.
Historically, the S&P 500 has returned ~10% annually over 30 years. Remember, time in the market beats timing the market.
9. Invest in Yourself (and Your Earning Power)
One of the smartest ways to use your raise? Level up your skills to earn even more.
- Take a certification course, attend a conference, hire a career coach.
- A $2,000 investment in professional development can lead to a $10,000+ salary bump.
- According to the Bureau of Labor Statistics, individuals with a bachelor’s degree earn roughly $502 more per week than those with a high school diploma.
10. Enjoy (a Small Part of) Your Raise Guilt-Free
Money isn’t just for saving and planning—it should enhance your life.
Allocate 5-10% of your raise toward “fun money.”
Book that weekend getaway, try the new restaurant, buy that book collection.
Behavioral finance shows small rewards help build positive habits.
Balance is key. Reward yourself without derailing your goals.
My Final Thoughts
Getting a raise is about more than just having more money in your account. It’s a chance to create security, freedom, and a better quality of life—if you handle it wisely.
From boosting your emergency fund to investing in your future, these 10 strategies will help you turn a temporary income increase into long-term transformation.
Pick three tips that speak to you and start this month.
What’s the smartest thing you’ll do with your next raise?
Last Updated on 19th May 2025 by Emma
