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Congratulations on your promotion! You've worked hard, put in the hours and now are being recognized with higher pay. That is reason enough to celebrate! While this is a great opportunity to put more into savings, you may want to take a closer look at your expected finances to gauge how much income you can expect and how to use it most wisely. Here are some "good-to-knows" you can use to make the most of a new promotion:
Wait before changing your day-to-day spending.
Of course you want to celebrate, but try not to spend large sums of money before your new salary hits your bank account. If the funds aren't there, you could drive up your credit card debt and handicap your first few paychecks paying back overspending.
Factor in taxes.
While taxes might be the last thing on your mind, they're incredibly important. Consider whether your new salary will change your tax bracket, if it could affect your deductions and credits when you file your tax return, and if you need to increase your withholdings with your employer. (Keep in mind that combat pay is usually tax-free.) The IRS has several calculators to help you get an idea of where adjustments may need to be made.
Re-evaluate your retirement contributions.
Throughout your career, when you receive promotions or other increases in income, turn a keen eye to what you're saving for the future. Begin by considering a higher monthly contribution to current retirement accounts, as well as diversifying your investment portfolio in new areas. If this seems intimidating or you're unfamiliar with retirement planning, talk with a financial advisor at Navy Federal Financial Group.
Pay off your debts.
Do you have a credit card balance that has slowly been on the rise for years? Maybe you made a large purchase you'd gladly take back now. Either way, now is your time to minimize the burden of financial debt. Take a look at debts with high interest rates and try to pay those off first. That way, you can save more money in the long run, as well as start improving your credit score overall.
There is nothing wrong with wanting to celebrate your promotion with a night out, trip or purchase. Just make sure any spending is aligned with your new pay and that you've considered how your promotion will affect your taxes, retirement contributions and current debts first (as suggested above). Once you've done that, you'll know how much you can reasonably use to treat yourself for your achievement.
As with most things, it's important not to get carried away with spending when you receive a promotion. You've worked hard—and you don't want to work even harder to make up for financial flubs. Before you undertake any spending based on your new pay, sit down and create a budget that incorporates your financial goals. If you need help developing one that is right for your situation, a Navy Federal Financial Group financial advisor can help you prepare for the next stage in your career and recommend investment vehicles that may fit your needs now and in the future.