Did you notice an increase in your paycheck recently? New federal tax changes should have resulted in more money in your pocket. It’s not often the federal government gives you money for no reason!
Securing Your Future
Sure, you could just let this extra money get lost in your checking account or maybe you’d rather hit the drive-thru for your favorite morning latter a couple more times this month.
But if one of your goals is increased financial freedom, take advantage of this ‘found money’ and let it work for you. You can save it in an emergency fund for the next unexpected expense, pay down some debt or add it to your retirement account.
Emergency Fund
If you don’t have an emergency fund, start saving your raise every paycheck. Have it directly withdrawn from your paycheck or set up withdrawals from your checking account and deposit into a dedicated Emergency Fund.
This account would preferably be a little difficult to access, possibly at a bank different from your usual one so it’s not easy to swipe for every day expenses. I use CapitalOne 360 for mine.
You can set up recurring debits from your everyday checking account to the CapitalOne account so you won’t be tempted to use this money for something else.
Pay off Debt
If you have debt of any kind, paying it down or even off altogether, can be so freeing. There are several ways to pay down your debt and using a raise to do it is great because you don’t even feel extra payments.
The best way to make sure you get the most out of your raise is to set up extra automatic payments to your credit card or car payment.
Automatic payments ensure you are making progress and decreasing the amount of interest you pay each month without spending the money elsewhere. It’s super painless too! Automatic payments can usually be set up online or by calling customer service.
Increase Retirement Savings
This is how I chose to use my paycheck increase. This year I’m totally determined to fully fund my retirement account ($5,500 currently) and save at least 10% of my income. So, I took this unexpected raise and set up another automatic withdrawal from my checking account to my IRA.
I use Vanguard for my IRA and Roth IRA. They make it so simple to save for retirement. (If you don’t already have an IRA, I highly recommend Vanguard because of their low fees and easy to set up accounts.)
I already had a set amount each paycheck automatically invested so I simply logged onto my Vanguard app and increase my contribution by $42.
This additional $42 invested every two weeks (I get paid biweekly) for the next 20 years will earn me over $32,000 for doing absolutely nothing! (Assuming 8% return.) Amazing!
If you want to know the math, $42 times 26 paychecks, times 20 years is $22,840 invested. An average 8% return ($32,000) will result in over $54,000. Compounding interest and the power of time are incredible!! 
What are your plans for your recent raise? Comment below! I’m a financial nerd and love hearing other people’s stories!
