What's Happening?
Chloe Moore, a certified financial planner and founder of Financial Staples, offers guidance on managing finances after receiving a raise or promotion. Moore emphasizes the importance of understanding
the impact of increased income on one's budget, tax liability, and long-term financial goals. She warns against making drastic lifestyle changes without fully comprehending the net effect of a raise, which could lead to financial missteps such as purchasing a new car or house prematurely. Moore suggests three key steps: calculating the new take-home pay, adjusting the budget to prevent lifestyle inflation, and increasing retirement savings. These steps are designed to help individuals make informed decisions and avoid common pitfalls associated with sudden income increases.
Why It's Important?
The advice provided by Moore is crucial for individuals navigating financial changes due to a raise or promotion. Understanding the real impact of increased income can prevent financial mismanagement and ensure that individuals do not fall into the trap of lifestyle inflation, which can derail long-term financial goals. By calculating the new take-home pay, individuals can better plan their budgets and avoid overspending. Additionally, increasing retirement savings with the extra income can significantly enhance one's financial security and future wealth. This guidance is particularly relevant in the current economic climate, where financial literacy and prudent money management are essential for long-term stability.
What's Next?
Individuals who have received a raise or promotion are encouraged to take proactive steps in managing their finances. This includes using tools like SmartAsset's paycheck calculator to understand net income changes and employing budgeting apps such as Monarch and PocketGuard to track expenses and set financial goals. Increasing contributions to retirement accounts, such as 401(k)s and Roth IRAs, is also recommended to maximize the benefits of the raise. Financial planners and advisors may continue to offer similar guidance to help clients navigate income changes effectively.
