If you get a significant pay raise, what do you do with the extra money? Say you get a 10% raise or $5K, assuming that works out to $175-200 per pay.
Do you just spend it? Do you allocate to a category in your budget? Or do you pretend like you never got it and simply roll it over to your savings?
I don’t know about you and we are all different but I personally did a mix of 2 and 3: assigning some to existing categories in the budget (bills, charity) but the majority went to savings.
The idea is simple and this concept is not my creation by any means: I never had this money , so the idea is to shift it to something else , this way I am not getting used to it. Otherwise, if I started using it for leisure and entertainment, then force to shift it to saving, it will feel more like a pay cut than raise.
If you do put it towards saving, best to automate the process. If you have a saving program through your employer-or better yet one where your dollars are matched- that makes things easier. If not, sign up for a high saving program or an index fund ETF where the long term appreciation could be in the 5-10% range, depending on which one you choose.
Another idea would be to redirect it all to a new long term savings goal, such as saving for a new car, home renovation, a grand vacation plan. That is, the goal is for something that is 3-5 years out, allowing you enough time to build a good chunk. For example, if your 10th wedding anniversary is three years away, and you would like to take the family on a European tour that will cost over $10K, then the new pay raise can be fully shifted to that goal. Automate the process, forget about it and when it is time to book the vacation, the money will be waiting for you, with no need to dip into debt.
As long as your meets and wants are met, there is no reason to keep spending any new pay raise you get. It will almost be like a waste. Instead, save it and you will be happy you did when there is a bigger calling for it. Otherwise you will need to use a credit card and go into debt.
One small decision about what to do with your pay raise can mean huge difference for your future.