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Better salary, better life? How to optimise your salary increase

Hold on to that amazing feeling of the raise for longer

The most important thing after getting a salary raise is not handling your new relationship with your co-workers. It’s not your new responsibilities either. It’s how you’ll spend the extra money wisely.

You did it!

You worked hard, jumped through all the right hoops and finally got that promotion you wanted.

With it comes a nice raise in salary too. Because you negotiated that well for yourself (using the tips from this newsletter, of course 😉).

Those new responsibilities at your job? They don’t scare you! You’re a boss. You’ve got nothing to worry about.

What you should worry about, however, is how you’ll spend that extra money.

What to do with extra money?

You may think it’s the most straightforward question ever. What to do with extra money?

Spend it! Right? You’ve earned that promotion, so now you get to treat yourself.

While I agree you should treat yourself and celebrate, I would not favour spending it all.

It would be a shame if, after your hard work in getting that raise, a month down the line, you still end up with 0 at the end of the month.

What good is progress if you can’t see it crystallise?

Lifestyle inflation - the only type of inflation you control

Unfortunately, even after earning more, people often end up with the same (or less).

Usually, this is caused by something called “lifestyle inflation”.

That means that your lifestyle costs rise just as quickly when you start to earn more!

A bigger car, more exotic holidays, fancier clothes, more dining out, a nicer home. You get the picture.

I’m a medior/senior/manager/VP… now, so I should be able to afford this”. Sounds familiar?

Continuously increasing your spending as your income goes up is the easiest way to stay stuck where you are.

Don’t look at your neighbours

When your friends or neighbours suddenly start showing up with brand new cars, phones or fancy trips on Insta, you might feel something.

Maybe some jealousy rises. Perhaps you think: “I also want that”, or “they have more money than I do”.

Showing our increases in wealth to the world and trying to stay at the same pace as people around us is something they call “keeping up with the Joneses”.

This is dangerous because it’s easy to get stuck in a vicious cycle of making more money, spending it all on stuff we don’t need with every increase.

Vicious cycles… Source: Brightside

Something like the above, but with money.

Finally, I’m earning more > increase your spending to match > still ending up with 0 at the end of every month > damn, I need to start earning more… > repeat perpetually.

You might wake up one day wondering where you spend all that money on and if those long hours at your job were really worth it.

Now, to the positive part of this email 😉

Reward yourself in the right way

Of course, you should celebrate that you’ve gotten that raise.

I’m not against celebrating and treating yourself. So start there!

But how can you do it intelligently?

What have you been wanting for a while that you can now afford to gift yourself?

The dopamine of buying a new thing wears off fast (and that’s coming from me, a gadget guy!). Maybe an experience will stay with you longer? Or what about taking your parent/sibling/friend/partner out for dinner?

Celebrate your achievement and make it memorable. How is up to you.

Buying a thing is, of course, also a very valid way to reward yourself. Just make sure it’s something you really want and not an impulsive purchase caused by a full purse.

A conscious and one-time reward will help you better assign your raise!

Here’s how to Divide your raise in a way that aligns with your wants & needs

1. Analyse your spending habits

In a previous newsletter, we discussed making an overview of your spending per category.

If you don’t know how you were spending your money before you got the raise, then there’s a good chance that you’ll have trouble managing your spending levels now that you have more cash on hand.

In case you haven’t yet, make an overview so you can know where your money is going each month.

View this newsletter if you need a refresher on how!

2. Paying yourself first and prioritising

I can’t tell you how to spend your money, that’s up to you. But a good mindset to adopt is “paying yourself first”.

When your money comes in, you prioritise paying yourself (putting money in your savings account or investing) before spending.

Of course, you’re going to want to cover critical expenses like rent, bills, and any high-interest debt.

I would prioritise the steps like this, as discussed in newsletter 3:

The MoneyMinds Method

  1. Fund a basic emergency fund of €2467

  2. Pay off high-interest rate debt (anything that’s more than ±6%)

  3. Build your Full Emergency Fund (3-6 months of expenses)

  4. Start investing - time to make your money grow

  5. [Optional] Pay off lower-interest rate debt

  6. Pursue other big saving and investing goals!

For the extra income, you can make a division:

Maybe 50% of the extra money you make can go to paying yourself (saving and investing for your goals), and the other 50% can go to extra spending?

Up to you to make that division based on the steps above!

3. Assign that spending

Emergency fund covered? No crazy debt or pressing bills? Great!

Time to assign the extra spending money. Here you can look at your spending categories and see where you tend to go over budget or where you’d like to spend more.

It’s generally a good idea to connect the extra spending to a category that you really enjoy/are passionate about, like a hobby or travel. This ensures the extra money you spend feels “meaningful” rather than adding more “empty” expenses.

Hold on to your moments of greatness by spending deliberately

Hold on to that fantastic feeling of the raise you’ve gotten, and EXTEND that feeling by spending and deliberately allocating your money.

It’s no problem to spend, as long as you do it deliberately! Reward yourself and assign your money to what gives you most joy.

Whether your raise will help you live more comfortably or allow you to save more, find something that works for you!

Knowing that we’re all different, and what works for me might not work for you, I’m curious to know how you’d allocate a raise!