Wondering what happened to your annual raise? So are millions of other Americans. Only about half of workers saw their pay increase in 2016, a survey by Bankrate found. Of those, just 37 percent actually got raises. The rest had to seek out a new job in order to boost their earnings.
The prospects for raises aren’t looking much better this year. Annual raises are becoming a thing of the past, as companies freeze salaries and look for other ways to compensate workers, such as performance-based bonuses.
If you are lucky enough to get a raise, it probably won’t be huge. The average worker should expect a modest 3 percent pay bump in 2017, according to the Society for Human Resource Management. For someone earning $48,320 per year — the average annual wage in the U.S. — that translates into an extra $1,450 per year, or about $120 per month, before taxes. Not exactly a life-changing amount of money but not chump change either.
Unfortunately, it’s easy to fritter away that additional income, especially if it only works out to an extra $50 per paycheck. Rather than paying down debt or saving more, you start spending a little more on coffee, groceries, or on weekly trips to the mall. Before long, it’s like your raise never even happened. But even a small raise can improve your financial situation, provided you make good use of it. Whether you’re getting an extra $10 a month or $10,000 a year, here are some suggestions for how to spend your pay raise.
1. Pay down debt
When Bankrate asked people how they planned to spend their raises, 22 percent said the extra money would go toward paying down debt. If you owe money on your credit cards or have student loans, using some of your new income to reduce your debt is a great idea. Doing so could shave thousands of dollars off of your total payments, Dave Ramsey noted. If you have $15,000 in credit card debt and decide to pay off an extra $80 every month, you’ll save $4,000 in interest and be debt-free years sooner than if you just made minimum payments.
2. Feed your emergency fund
Instead, use your raise to build a “just-in-case” fund — money you can use when your car needs new brakes or a broken wrist sends your kid to the emergency room. If your raise translates to an extra $100 per month, put that money in a savings account. In less than a year, you’ll have a $1,000 cushion and be in a better financial place than most people.
3. Save more for retirement
4. Save for college
If you take a $120 monthly raise and put it in an account earning 3 percent, you’ll have just over $34,000 in 18 years. Save $50 each month, and you’ll have an extra for $14,333 for books and supplies by the time your child graduates from high school. Check out the College Board’s savings calculator to find out how much your savings might grow before it’s time for your son or daughter to enroll.
5. Start investing
6. Learn new skills
Coursera offers affordable classes from top institutions (such as Johns Hopkins and Stanford) in in-demand subjects, such as data science, programming, public speaking, and digital marketing. Each course costs between $20 and $200. Or sign up for a class at your local community college or through your industry association.
7. Invest in a new wardrobe
While the do’s and don’ts of interview style vary depending on your industry — in conservative industries, a suit is still a must, but those in a creative field usually have more leeway — looking put together is not optional. If your frumpy suit is vintage 1990s, take some of your raise, and put it toward some more au courant apparel. Even if you’re not actively looking for work, a closet overhaul could improve your career prospects. Eighty percent of executives OfficeTeam surveyed said employees’ clothing choices influenced their chances of receiving a promotion.
8. Give to charity
Giving your $50 monthly raise to charity has benefits beyond the feel-good factor. You might get a tax deduction, for one. And if your company has a donation-matching program, you might be able to double the value of your gift — and your raise.
9. Go on vacation
However stingy or generous your raise, you can plan a memorable trip. A few hundred dollars is enough for a weekend getaway within driving distance, while a raise of a few thousand dollars can get you to a more exotic destination. Wherever you go, you’ll return to work refreshed and with the energy you need to succeed — and hopefully score an even bigger raise next year.
This article was originally published on The Cheat Sheet.