Smart Things To Do With Your Raise

When you get paid in the upcoming few days, chances are that your paycheck will be just a smidge larger than it was last year.  The 1% raise may not be a lot, but it can have an impact if you use it wisely.  What are the smartest ways to use your extra money?

Retirement Savings

Whether you prefer the Thrift Savings Plan (TSP) or an Individual Retirement Arrangement (IRA), retirement savings is always a smart choice.  TSP contributions can be set up via MyPay and come out of your pay before it even hits your bank account.  If you prefer to fund an IRA, you can set up automatic transfers for the 2nd and 16th of each month.

Pay Off Debt

Paying off debt is consistently identified as the number one way to improve your entire financial future.  Even an extra $20 a month will help knock down a credit card or loan balance, and the interest charged will go down, too.

Build Up Your Emergency Fund

Having an emergency fund goes hand-in-hand with paying off debt.  Without an emergency fund, any unexpected costs will end up increasing your debt again.  As with everything, the first step is the hardest.  Save a little every pay period, increasing that amount as you can, and you’ll suddenly find that you’ve put together a significant amount.

Save For Planned Expenses

We all have upcoming expenses:  new tires, a Permanent Change of Station (PCS) move, orthodoxies for a child, or college tuition.  The more you plan, the more manageable those expenses will be.  Saving your raise for a specific purpose will make sure it doesn’t get spent in the piddly day-to-day spending that happens so easily.  You’ll be glad to have that allocated savings when you need it.

I always, always, always recommend that you set up automatic transfers as much as possible to prevent allocated money from being spent unintentionally.  Our family utilizes allotments, automatic funds transfers, and a solid schedule of transfers to fund all these priorities.  I am way to disorganized to keep track of it all in my head!

Whichever option you choose, put that money to the best possible use for your particular situation.  You’ll be glad.

About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.
  • sarah

    Seriously? The $3 per month probably won’t be noticed but the price of gas going down makes more difference. I hope our government officals enjoy thier pay raise. I seriously wish they had to live 30 days in our lives.

    • Jeff

      Have you considered treating the drop in gas prices as a pay raise? We’ve all been making it, somehow, at $3-4/gal… now we get a break.
      This historic dip won’t last forever, so I’d suggest making the most of the opportunity. Invest the difference, pay off debt, think about a more efficient car, etc. Whatever you do, don’t waste it.

      • Kate

        Excellent point, Jeff. I had been thinking about writing a post about that, but I thought it would sound remarkably like this post. Thanks for tying the two together!

    • Kate

      Sarah, I’m not sure what rank you are, or how long you’ve been in the service, but even new recruits in boot camp are getting $15 a month raise. Someone who has been in for a few years will be receiving $25 to $30 a month, and more senior people are obviously getting more.

      Federal government employees also received a 1% raise after receiving NO raise for the previous three years (military members received 1.7%, 1.6%, and 1.0% in those years). Lawmakers voted for the fifth year in a row to decline the automatic raise they are supposed to get, meaning they haven’t had a pay raise since 2009.

      You may be unhappy that the military did not receive a larger raise, but to compare it to “government” raises shows that you haven’t been paying very close attention.

  • rbittle

    Are you kidding? Raise? Maybe if I saved it through December I could buy a pizza.

  • Rita

    Just exactly who got the pay raise as I sure did not see any change in my pay unless you are talking about the increase in taxes taken out. The military and retiree pay raise is and was a JOKE and a disgrace to all of us who have and are serving this country.

    • Kate

      Rita, all active duty military received a 1% increase. I’m not sure how you know that there has been an increase in taxes taken out, since the Leave and Earnings Statements aren’t available for another 10 days or so. There are no tax increases on the books.

      Yes, the power of the raise is diminished by the need to pay taxes on the additional income. However, most military families are paying very little income tax to begin with, and are certainly not enough to negate the entire raise.

  • Ali

    Wow, you really have to wonder if the author of this brilliant article bothered to look up just how small that raise actually is.