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How to Modify your Budget when you get a Raise

Woman making a budget

Making more money is always an exciting thing, and when you get that first larger paycheque, there is always temptation to spend it on a ‘want’, such as a fancy gadget or unplanned vacation. But if you’re not careful, you may overdo it and fall victim to lifestyle inflation, which can make it difficult to save for the future or get out of debt.

Slow down and look at your budget

Before going out to spend your larger paycheque, take a step back and look at your goals for the future. Are you looking to get out of debt? Save for a home? Getting a raise is a great opportunity to increase the amount of money you’re putting towards debt repayment or your savings. Budget some of your raise to go towards paying down your debt or saving for your future.

You’ll also want to keep in mind that a raise may put you into a higher tax bracket, meaning that your take home pay may not be as large as you were expecting when you received your raise. Before planning your new budget, take a look at your pay stub to determine just how much money you’ll be bringing home every pay period. 

Start an emergency fund

If you don’t have an emergency fund of at least three months of expenses set up, now is a great time to start your emergency fund! Consider setting up a pre-authorized transfer to your emergency fund every time you get paid in order to make your saving effortless.

Do something for yourself

You got a raise and that feels great! Once you’ve taken the time to look at your budget and make a plan for your increased income, treat yourself to something you will enjoy, such as a dinner out or a massage. Just make sure that whatever you end up doing works with your new budget!