To help manage a salary increase! Here are some key tips: budget wisely, build an emergency fund, focus on debt repayment, explore savings and investments, plan for retirement, avoid lifestyle inflation, set clear financial goals, review insurance, maintain a good credit score, and consider giving back to causes you care about.
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“I’m (30f) making an internal move at my current company & with this move comes a $38k increase and I’ll be making 6 figures. Which I’m so stoked about! I am also, aware of lifestyle creep & looking to allow myself nice treats here and there but not to the extent where I’m buying things coz I will have more money. Just want some tips or advice on things I should/could consider with this pay bump. Renting. Student loan – should be paid by January next year with this pay bump ad well 6k left on a personal loan 1k in overdraft 45k in Kiwisaver 2k in a normal savings account, 500 in sharesies I have life & income protection/insurance through work No credit cards Low- medium credit (it’s not bad bad, been making its way up, in the last 2 years)”
(Original question on Reddit)
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Congratulations on your upcoming salary increase and the internal move at your current company! It’s great that you’re already considering managing your finances wisely with this pay bump. Here are some valuable tips and advice to help you make the most of this financial opportunity:
Start with these tips
Create a budget
First, it is essential to manage your money wisely, so consider creating a detailed budget that outlines your monthly income and expenses. This way, you can track where your money is going and make adjustments where needed. Also, allocate some of your increased income towards savings, investments, and paying off debts.
Emergency Fund
While paying off your debts is essential, ensure you have set aside at least three to six months’ living expenses in an easily accessible savings account as an emergency fund. This can provide a financial cushion in case of unexpected events where you need money urgently.
Debt Repayment
Focus on paying off your remaining personal loan and overdraft as soon as possible. Reducing high-interest debt can save you money in the long run and improve your financial stability.
Savings and Investments
Consider exploring other investments to grow your money over time and putting more into an interest-rewarding savings account. Since you have a low to medium credit score, building a solid financial foundation through savings and investments can help improve your credit over time.
Other things to think about
Retirement Planning
Continue contributing to your KiwiSaver, especially if your employer offers matching contributions. With your salary increase, you may feel comfortable contributing more than the minimum required to secure your financial future.
Lifestyle Inflation
It’s crucial to be mindful of lifestyle inflation, a common pitfall where increased income leads to higher spending. To combat this, establish clear boundaries on discretionary expenses and make saving and debt repayment your top priorities. While it’s great to treat yourself occasionally, remember not to fall into the trap of overspending just because of your income boost.
Financial Goals
Define your short-term and long-term financial goals. Whether buying a home, starting a family, or travelling, having clear objectives will help guide your financial decisions. This way, you can start planning financially to set yourself up to reach these goals.
Review Insurance
Periodically review your life and income protection insurance to ensure it meets your current needs. Adjust coverage if necessary.
Credit Score
Continue making timely payments on your debts to improve your credit score further. A better credit score can open up opportunities for lower interest rates on future loans.
Give Back
Lastly, consider allocating some of your increased income to charitable donations or essential causes.
Remember that financial planning is continuous, and your priorities may change over time. Regularly revisit your financial goals and adjust your plan accordingly. With careful financial management, you can maximise your salary increase and secure your financial future.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The information in this post is only general in nature and is not personalised financial advice. Please contact us if you want financial advice.
