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By Steve Jacobs
“Congratulations, you’ve been promoted!” might be the most awesome phrase you’ll ever hear during your working career. There are many different ways it can happen, but when it does, the best part of all is usually a concurrent bump in pay.
This is especially true in the military, where time in service increases, annual cost of living pay hikes and promotions from one rank to another will all boost your income.
It’s tempting to spend that windfall on something exciting right away, to give yourself a little “good work, champ” pat on the back. And while rewarding yourself with something affordable certainly isn’t a bad idea, it shouldn’t be all you do with this newfound income.
“If we don’t have a plan, it’s pretty likely the money will just creep into normal spending,” says JJ Montanaro, a CERTIFIED FINANCIAL PLANNERTM in USAA’s Military Advocacy Group. “If you don’t address it thoughtfully, it’s pretty likely you’ll find a not-so-thoughtful way to use that money. You’ll want to have a plan for it before you miss out on the opportunity to do some financial good … and have some fun.”
We all would like to have a little more fun with our finances, right? Luckily, there are affordable, sustainable ways to put that money to good use and still have some left over for a quick reward. Here are a few.
The Obvious Choices
There are quite a few ways to use that money that you’re likely already considering. But just in case you aren’t, consider the following:
• Pay down high-interest debt. This debt is toxic, and you’ll feel better with it off your plate.
• Build your emergency fund. According to Montanaro, you’re going to want the equivalent of 3-6 months of your core expenses stashed away.
• Save it. No, it’s not as much of an immediate win as some of the other things on this list. However, you can set up an automatic transfer into a savings or retirement account at the same time you get the promotion, and you won’t feel the pain of having to do the hard work.
• Or you can bump up what you put into your employer’s retirement plan – or your Thrift Savings Plan, for our military members. Whatever you choose to do, seeing the number in your savings or retirement account increase incrementally every month will be a reward in and of itself.
You could also take a few actions that will help you out tremendously in the long run. Have you considered any of these?
• Pull together what’s needed for a home down payment or a car purchase.
• Start a college fund. You can auto-debit into many of these accounts, so you won’t even miss the money.
• Build up a fund to transition out of the military. One thing all those who serve have in common is they’ll eventually take off the uniform. Saving enough to bridge the gap between military and civilian employment is critical to a smooth transition.
These are just a few of the many things you could do with your raise. Montanaro puts it best: “The most important thing is having a plan for that money before it becomes just another part of your spending routine.”
If you need help keeping track of your finances – whether you got a raise or not – check out these online tools from USAA
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