How to adjust your budget after receiving a promotion
According to the U.S. Bureau of Labor Statistics, over five million people were hired for a new job this fiscal year alone. Additionally, U.S. employers promote nearly seven percent of their workforce annually. Whether you’ve received a raise because of an internal job promotion, or you’re earning extra money at a new job, adjusting your budget to reflect your additional income is important.
Learn why updating your budget regularly is imperative to reaching financial goals and how to allocate extra income effectively.
When should you adjust your budget?
At a minimum, experts suggest reviewing your budget quarterly, if not more frequently. Any time you acquire a new fixed expense, or your income changes, it’s important to look over your personal finances. That way, you can ensure you’re still on track to reach your financial goals.
Luckily, most promotions and new job offers are secured in January, September and October, an ideal time for evaluating your budget. Many people find January a favorable time to recommit to their budget, as long-term financial goals like saving for a house or spending less money on high-interest loans are common New Year’s resolutions.
September and October are also favorable months to adjust your spending and savings plans with the holidays right around the corner. Before hosting big family events or buying expensive gifts, it’s smart to double-check your discretionary spending.
Ways your budget may change after a promotion
When you’re promoted at work, you’ll likely gain some financial benefits – a higher salary, a greater bonus incentive, etc. However, this advance in your career and shift in additional responsibilities may also lead to added expenses.
You might need a new wardrobe if you head into the office more often. Will you need to travel for face-to-face meetings, using more fuel and adding wear and tear to your car? These are all added expenses you want to account for as you review your new budget.
Your career growth may also open new possibilities in your personal life. Perhaps your career transition has inspired you to have kids, move across the country, or purchase your first home! All these exciting journeys require planning and saving money – it may be time to create savings sub–shares so you can track each individual goal.
Options for allocating extra take-home pay
Earning higher income from a promotion will help you meet your financial goals faster. All you need is a solidified plan for allocating your additional income.
Is your goal to have a healthy emergency fund, or maybe you’re looking to be credit-card debt free? Others may want to invest more in retirement accounts or make principal-only payments on large loans. These are all worthy avenues on the road to financial success, and there are a few financial tools that can help!
Opening a high-yield savings account is a great way to build your emergency fund faster. Generally, these interest-bearing savings accounts help you earn market-leading interest, while also keeping your money accessible. Look for a savings account with a great interest rate, no minimum balance, and no withdrawal penalties for a liquid account to save money for emergencies.
Paying down high-interest debt is another worthy option for allocating your additional funds. If you have credit card debt, it could be beneficial to make larger payments to pay off the debt quickly, and then reallocate the funds to your savings once the credit line is paid off.
Lastly, many people opt to increase their 401k contributions, or open an IRA account to save for retirement. Both options are helpful to those who’ve recently received a promotion, as pre-tax contributions can potentially lower your taxable income.
Earning a promotion is something to be celebrated! Achieving your career goals is a great opportunity to meet your financial goals sooner. Whether your dream is to be debt-free, or you’re hoping to be better prepared for an emergency, your new paycheck can be put to excellent use. Find savings accounts with high interest rates and consult a financial success advisor for more ways to maximize your paycheck.
