Maximize Your 2022 Raise: Smart Financial Strategies

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Here's what to do with that extra cash.

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Key points

• Many people will see their paycheck go up in 2022.
• Here are some tips for using that extra cash wisely.

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Though not everyone gets a raise every year, it's common practice to boost workers' pay at the start of a new year. The great thing about getting a raise is that it's money you're not used to having. That means instead of spending that cash on everyday bills or indulgences, you can use it to better your financial picture. Here are a few good ways to make the most of your upcoming pay boost.

1. Send it directly to savings

If you're able to cover your living expenses based on your pre-raise income, then you have a prime opportunity to build or boost your savings once that pay bump takes effect. But don't just tell yourself you'll save that money. Instead, force yourself to do it.

You might have every intention of earmarking your raise for savings, but it's easy to fall victim to temptation. So instead, set up an automatic transfer so the extra money you collect goes directly from your checking account right into savings -- before you get an opportunity to touch it.

2. Put it toward retirement

Did you know you're technically supposed to be saving 15% to 20% of your income for retirement? Yikes. That's a lofty goal, and one you may not be able to meet until your earnings pick up. But you can still increase your savings rate by sending your raise into a dedicated retirement plan.

If you have a 401(k) plan through your employer, you can ask to have that extra money deducted from your paychecks and sent into your retirement account. That way, you won't even see it -- or miss it. Otherwise, you can find an IRA with an automatic transfer feature and achieve the same goal.

3. Use it to pay off debt

If you're carrying debt other than a mortgage or car payment, it can be stressful. Once your pay boost kicks in, it pays to use that money to chip away at your loan or credit card balances.

In fact, a good approach is to assess your various debts and see which one has the highest interest rate attached to it (chances are, it will be a credit card balance). That's the one you'll want to tackle first, and then work your way downward from there.

4. Start investing

Some people don't invest because they find the idea intimidating. Others shy away from investing due to a lack of funds.

If the latter has been holding you back, you should definitely consider using your raise to open an online brokerage account and start loading up on stocks and other investments you're interested in. The sooner you start, the more opportunities you'll have to grow wealth in your lifetime.

Don't let that raise go to waste

It's easy to give in to temptation when your paycheck gets larger and use your extra money for things like takeout, clothing, or entertainment. But if you stick to the moves above, you may find your raise has a much greater impact on your financial situation and wellbeing on a whole.

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