5 Ways Getting a Raise Could Be Bad For Your Finances
Congratulations! You finally got that raise you’ve been working toward. The extra money in your bank account is going to help secure your finances and get you closer to your goals… right?
Not always. Sometimes the excitement of putting more cash in your pocket on a regular basis can have a bigger influence on your heart, not your brain. And that can lead to lifestyle creep — when making more money leads to spending more money on the finer things. Like a nicer car, a bigger wardrobe and fancier vacations.
And while treating yourself occasionally is OK — you deserve it! — spending more on things you don’t need and skipping the important financial choices can delay your financial success and maybe even your retirement plans.
So even though your direct deposits are bigger these days, don’t get distracted by all the shiny new things you can afford now. By making these mistakes, your raise could actually do even more damage to your financial goals.
Mistake No. 1: Not Increasing Your Investment Contributions
When you’re making more money, you have the chance to make even more if you invest it. Even if it’s only a fraction of your pay increase.
You really don’t need that much to start investing — and you can even get free stocks (worth $2.50 to $200!) if you know where to look.
Whether you’ve got $5, $100 or $800 to spare, you can start investing with Robinhood.
Yeah, you’ve probably heard of Robinhood. Both investing beginners and pros love it because it doesn’t charge commission fees, and you can buy and sell stocks for free — no limits. Plus, it’s super easy to use.
What’s best? When you download the app and fund your account (it takes no more than a few minutes), Robinhood drops a share of free stock into your account. It’s random, though, so that stock could be worth anywhere from $2.50 to $200 — a nice boost to help you build your investments.
Mistake No. 2: Not Putting More Money Into Your Investments
When you start to make more money, you might think the smart thing to do is add it to your savings account.
Unfortunately, saving alone may not be enough for you to be able to build your wealth. You’re on the right track, but the money you’re stashing away isn’t growing like it could be. To retire comfortably, it helps to grow your money. That’s why we like an app called Stash.1
You don’t need a ton of money, either — you can get started with as little as $5. You can invest in pieces of well-known companies like Amazon, Google or Apple without having to pony up for expensive full shares of stock. The best part? Some companies may even send you a check every quarter for your share of the profits, called dividends. If these companies profit, so can you.
It takes two minutes to sign up, and your investments are protected. With Stash, investments are held by their custodian, Apex Clearing Corporation, a member of the Securities Investor Protection Corporation (SIPC) — that’s industry talk for, “Your money comes with protection.”2
Right now, Stash will even give you a $5 bonus once you deposit $5 into your account.3 The sooner you get started investing, the more time your money has the potential to grow.
Mistake No. 3: Not Adding More Money to Your Emergency Fund
Your emergency fund is an important safety net to have — and when you get a raise, you can reach your goal number faster.
You should be using not just a safe place to stash it away — but an account that can also earn you more money on your savings.
Under your mattress or in a safe will get you nothing. And a typical savings account won’t do you much better. (Ahem, 0.06% is nothing these days.)
But a debit card called Aspiration lets you earn up to 16 times the average interest on the money in your account.
Not too shabby!
Enter your email address here to get a free Aspiration Spend and Save account. After you confirm your email, securely link your bank account so they can start helping you get extra cash. Your money is FDIC insured and they use a military-grade encryption which is nerd talk for “this is totally safe.”
Mistake No. 4: Not Giving Your Family $1,000,000
Oh, to be a millionaire. Look, not all of us have the money to set up trust funds for our loved ones. But you could still leave them up to $1 million in life insurance — and you don’t even need to have the money in the bank.
You’re probably thinking: I don’t have the time or money for that. But this takes just minutes — and you could leave your family up to $1 million with a company called Bestow.
We hear people are paying as little as $16 a month. (But every year you wait, this gets more expensive.)
It takes just minutes to get a free quote and see how much life insurance you can leave your loved ones — even if you don’t have seven figures in your bank account.
Mistake No. 5: Overspending Because You Can ‘Afford It’ Now
Just because you’re making more money doesn’t mean you should be spending more.
So wouldn’t it be nice if you got an alert when you’re shopping online at Target and are about to overpay?
That’s exactly what this free service does.
Just add it to your browser for free, and before you check out, it’ll check other websites, including Walmart, eBay and others to see if your item is available for cheaper. Plus, you can get coupon codes, set up price-drop alerts and even see the item’s price history.
Let’s say you’re shopping for a new TV, and you assume you’ve found the best price. Here’s when you’ll get a pop up letting you know if that exact TV is available elsewhere for cheaper. If there are any available coupon codes, they’ll also automatically be applied to your order.
In the last year, this has saved people $160 million.
You can get started in just a few clicks to see if you’re overpaying online.
Capital One Shopping compensates us when you get the extension using the links provided.
Kari Faber is a staff writer at The Penny Hoarder
1 For retirement, Stash offers access to traditional or Roth IRAs.
2To note, SIPC coverage does not insure against the potential loss of market value. Apex Clearing Corporation is a third-party SEC-registered broker-dealer and member FINRA/SIPC.
There’s no guarantee any stock will pay dividends in a quarter or year. Dividends may be subject to additional taxes, and are considered taxable income. Please refer to the IRS for additional information.
3Offer is subject to Terms and Conditions. To be eligible to participate in this Promotion and receive the Bonus, you must complete the following steps: (i) successfully complete the designated registration process of opening an individual taxable brokerage account (“a Personal Portfolio”), (ii) link a funding account (e.g. an external bank account) to your Personal Portfolio, AND (iii) initiate and complete a minimum deposit of at least five dollars ($5.00) into your Personal Portfolio. In the event you only complete the designated registration process to receive the Financial Counseling Service (as defined in your Advisory Agreement) or do not otherwise complete the account opening process for an individual taxable brokerage account (“Personal Portfolio”), you will not be eligible to receive the Bonus.
The Penny Hoarder is a paid solicitor of Stash.
This information is for educational purposes only. This material is not intended as investment advice and is not meant to suggest that any securities are suitable investments for any particular investor. Investment advice is only provided to Stash customers. All investments are subject to risk and may lose value. All product and company names are trademarks ™ or registered ® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.