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How to Budget a Raise

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This post may contain affiliate links. Please read my terms of use for more information. 

First off, I just have to brag on my husband for a bit. He starts a new job today as a marketing specialist for a new company! Jacob graduated 3 years ago with his bachelor’s degree in marketing and management but has since been working in a different field. He is excited to start a career that he is interested in and studied for! With this new job also came a pay increase (which is awesome!!) and since we found out that he got the job, I’ve been playing around with our new budget! When your income goes up, your budget will change, and there a few different things you can do:

Add Extra to Your Current Goal

Debt Final 2

Here is a budget example in which one person gets a semi-modest $500 a month raise. Before the raise, they are putting $1815 a month to their debt (which is their current financial goal). But after the raise, they are putting $2265 a month to debt! All the extra money they received from the raise went straight to the debt (besides the added 10% tithe)! Nothing else from their cost of living went up. No adding to vacation, upping entertainment… Not even a more expensive apartment to rent! Everything else stayed the same and the debt payment amount increased.

If your current financial goal is to pay off all debt, put this raise straight to your debt payments to get rid of it sooner! If your current financial goal is to save for a house, put it straight to the house fund! If you are trying to finish that emergency fund, yup, add it to those savings!

Just because you received a raise doesn’t mean that you should up your cost of living quite yet. First, be financially secure and meet your first few (but major) financial goals before using your raise for more “fun” items.

Add Extra to Cost of Living

Fun Final

This is the same couple from the first example, but this time they have a house with a mortgage payment and are working on saving each month for a new car. They have no debt and have a full emergency fund. When they get the raise, they up categories that bring more fun and entertainment including adding more to their car savings, vacation savings, and monthly entertainment.

When you have no debt or large financial goals to take care of, it’s completely OK to enjoy that extra raise! Take your spouse on a nice vacation (debt free of course) and add to more fun things throughout the month. These are also the perks of living debt free: you don’t have to hand over your raise to your debtor.

Receiving a Large Raise


At some point in your career, you’ll hopefully receive a larger raise if you get promoted or change industries. In this last example, the same couple receives a large raise and gets to add a lot more to their monthly budget. They get to add more to fun things like entertainment, vacation, eating out, car saving and even add cable! But they also get to make smart financial decisions such as paying more to their mortgage so they can pay off the house early, and investing for retirement every month.

Whenever you receive a raise, remember to spend it wisely! Use it to work toward your financial goals first, and later, give yourself some room to have a little more fun with it. So here’s to promotions, raises, and–as always–spending your money wisely!


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