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How To Make Your Raise Really Pay
By: James Dimmitt
Were you lucky enough to get a pay raise recently? If so, what are you planning
to do with it? Here are 4 tips on how to make your raise pay real dividends for
you now and into the future:
1) Open a savings account
Baby boomers can probably remember parents or grandparents making regular
deposits to a savings account at the local bank. Our current savings rate is a
measly 2.5 percent – down significantly from the 7 percent average 30 years ago.
For example: If you saved an $80.00/month raise, at the end of one year you’d
have $960.00. It’s not a huge amount for some, but it’s a start. And thanks to
the wonders of compound interest you can watch it grow into a nice nest egg over
time, especially if you continue to add new raises to your savings.
Savings account interest rates are on the rise. The online bank, ING Direct is
currently offering 2.35% APY (annual percentage yield), with no minimum deposit,
no fees, and your account is FDIC insured. Visit www.ingdirect.com to learn more
about their saving account plans.
2) Pay down credit card debt
The average American carries $2,627 in credit card debt, up 14.5 percent from a
year ago, according to Myvesta, a nonprofit consumer education group in
Rockville, Md.
Fifty-three percent of credit card companies require only a 2% minimum monthly
payment, up from 43% of companies in 2003, according to the consumer advocacy
group, Consumer Action.
Paying the 2% minimum due each month on a balance of $2,600.00 at 18.0%
interest, it would take you MORE THAN 35 YEARS to pay it off, not to mention the
$6,730.00 spent in interest charges! Instead, add your $80.00 a month raise to
the minimum monthly payment and you would be paid off in 2 YEARS and pay just
over $500.00 in interest charges, a huge difference!
Applying your raise toward your credit card debt will lower your debt to income
ratio, improve your credit score, and help you escape from the nasty web of
outrageous credit card debt.
3) Open or contribute to an Individual Retirement Account (IRA)
If you haven’t started contributing to a personal retirement account, you
should, and what better time to start than with your new raise? This is exactly
what I did three years ago, although I wish I would have started sooner.
If you’re counting on Social Security to take care of you in your retirement
years, you’d better do some rethinking. Regardless of changes to the Social
Security system, we tend to overestimate how much we’ll receive in benefits and
underestimate how long we’ll live. The only way to fill that gap is to have
income from your own retirement plan to enjoy in your “golden years”.
An additional benefit of opening an IRA is that many companies will match your
personal contributions at a specific rate. Check with your human resources
department to see what plans are available and whether or not your employer will
match your contributions.
4) Invest in Stocks, Bonds, and Mutual Funds
You don’t need thousands of dollars or a degree in business in order to invest.
Nor do you have to hire a broker or financial advisor to own stocks, bonds, or
mutual funds.
In fact, a company called ShareBuilder is making it easy for anyone who can
afford to make regular automatic investments “to build wealth through long-term
investing.” Visit www.sharebuilder.com to learn more about their simple,
affordable, and flexible plans to fit your budget.
5) BONUS TIP
Another option, and the one that too many of us choose, is to do nothing other
than spending our annual raises. Unless you had some unforeseen emergency or are
living paycheck to paycheck, is there any reason to think you can’t get by this
year on the same salary as last year?
The Federal Reserve estimates that over 40% of U.S. families spend more than
they earn and as many as 25% of households aren’t saving enough for the future
Your raise presents a unique opportunity for you to invest in the well being of
your finances with results that can continue to “pay” you now and well into the
future.
About the Author:
© 2005, http://www.yourfreecreditreportnow.com Author: James H. Dimmitt James is
editor of “To Your Credit” a FREE weekly newsletter focusing on managing your personal finances and credit. Subscribe and get a FREE copy of your credit
report when you visit: http://www.yourfreecreditreportnow.com |
