Thursday, March 1, 2012

Do You Increase Your Expenses When You Get A Raise?

What do you do with that extra money after a raise or a promotion? It can be so tempting to buy a new car, TV, furniture, or go on a shopping spree. I am not saying you shouldn't treat yourself after a raise or a promotion, but I do think it's more important to delay gratification by using that extra money to pay down debt and increase your savings before going on a shopping spree.

I remember when I use to work at the bank and I would come across customers who would apply for a mortgage based on the raise that was yet to come. These people were wanting to spend money they didn't even get yet. Why on earth would you want to do that to yourself. I mean seriously, that kind of pressure is just crazy. Why wouldn't they want to put that money into a savings account to have a cushion just in case an emergency happens. What's even more crazy is I would come across customers who would do this kind of thing being the only bread winner. Huh! So you know what would happen if that person's hours at work were to get reduced or if they got laid off. That family would be screwed.

Getting out of debt and investing is the best thing you could do for yourself and your family when more money comes your way. There are so many unpredictable things that can happen in life. Imagine having $500,000 worth of debt, minimal or no savings and finding out that you're about to have a baby, or that your spouse has an illness causing him to no longer be able to work, or if you or both you and your spouse loose your job. The truth is these things happen to people every single day.

Now imagine if one of these things happened and you had no debt and $500,000 in savings. Your situation wouldn't look as bad at all, in fact your stress level would be reduced significantly. Dealing with money problems on top of an unexpected pregnancy or a job loss can be devastating. Why even consider putting yourself through that. The more you plan for those emergencies, the less of an emergency it actually is.


Bryan said...

It's definitely easy for my wife and I just to spend extra money when we get raises. A particularly bad offender for us is spending money eating out. It's kind of funny: we work more to make more money, but then, because we make more, we're a lot lazier when it comes to making and eating less expensive food.

Shondell said...

I completely understand where you're coming from. The last thing you want to do when you get home from work tired is cook. I am really just too cheap to eat out often. What works for me is cooking a few meals on the weekend that will last for the week. If I get tired of those meals during the week, I may make something easy mid week. Also you could both cook to ease some of the load of just one person cooking.