Do's and Don'ts When You Increase Your Income
Do's & Don'ts When You Increase Your Income
From the Recaps Archives originally posted on 7/11/2019
2 Things You Should Do (and 1 You Shouldn’t) When You Increase Your Income
Team Member Blog, Consumerism to Frugalism
Most of you would like to increase your income.
Whether you’re looking to make a career move, change companies, start a business, or simply move up in your current situation, making more money is likely one of the major factors in your job decisions.
Here at Money Saved is Money Earned, we know money isn’t everything and you shouldn’t live just for money. However, we also know that money plays a major factor in your ability to live the way you want.
While we should live within our means, most people would make very different choices if money wasn’t an option. Having said that, money should never be the end goal.
What’s really at the heart of the drive for more money is the desire for more freedom and power: over our life and the choices we make about it, as well as our ability to influence the world in the ways we care most about.
Money is nothing more than the means to an end.
Unfortunately, most of us will not win the big lottery, start a billion dollar company, or inherit millions. This means that while our incomes may increase over time that increase will likely be gradual, and may come in the form of step or merit-based raises, bonuses, or commissions.
However, most people find themselves spending money as fast as they make it, gradual increase or not.
With these points in mind, what SHOULD you do if you find your income increasing?
Luckily, we’re here to help.
Here are 2 things you should do when you increase your income and 1 you shouldn’t.
Things You SHOULD Do :
Pay off Debt
We know we play this tune like a broken record, but paying off your debt as fast as you can is one of the most effective ways of having Money Earned through Money Saved.
In fact, paying off debt is second only to not accruing debt in the first place!
The reason paying off debt as soon as possible is so impactful is because of interest.
Essentially, any loans you have you will pay interest on, which gives the lender extra incentive for loaning the money in the first place.
The trick with paying off debt at a faster pace than your loan term lies in the fact that any extra you pay goes directly toward the loan balance and not to interest.
Thus, making extra payments lowers your overall balance, which lowers the interest paid, which lowers the total amount you will pay to the lender.
Depending on the size of the loan and how much extra you put toward it, the impact on the total you pay can be quite astounding.
For instance, making extra payments on a mortgage could save you upwards of $30,000 in interest and several years on the life of the loan!
Not only does paying down your debt help you to save on interest and shorten the life of the loan, having less debt helps you maintain financial flexibility.
Say your car dies and you need another one, or you get in an accident (heaven forbid) and have medical bills. What if you get laid off or get sick and need to miss work?
If your debt to income ratio is maxed out you’ll be hard-pressed to get more credit no matter how great your credit score is or how much you make.
This is why it’s so important to focus on paying down any debt you do have as fast as possible and to try and keep it paid down. Not only will you be saving on interest and getting out from under loans faster, you’ll be able to handle any unknowns that may come up that could require you to accrue more debt.
Long story short, if you increase your income one of the first things you should do with that money is to pay down your debt.
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