During your career, it’s inevitable that the size of your paycheck will change. Whether you move jobs, get promoted or get laid off, many factors influence how much money you bring home. When your income does change, for better or worse, it is essential to know how you can adapt.
Know these tips for scaling your budget up or down and making sure you’re always in sync with your savings needs.
How to Change Your Budget If Your Paycheck Increases
Don’t spend more
If you get a raise or bonus, pat yourself on the back – you’ve earned it. Just don’t treat yourself by spending that extra cash right away. Thorin Klosowski of Lifehacker cautions that when you get a pay increase and immediately adjust your lifestyle to it, you become trapped in a cycle of getting paid more but still not having more money ready for the future.
Instead, take a long-term look at the goals you want to reach before you alter how much you spend every day. For example, if you’re going to have money for a down payment on a house, consider saving your pay increase on every paycheck to bring you that much closer to being able to afford it.
How to Change Your Budget If Your Paycheck Decreases
Reinforce your emergency fund
When you’re living paycheck to paycheck, a raise is an excellent opportunity to build a financial safety net.
Rod Ebrahimi of ReadyForZero told Lifehacker that you might be tempted to use your raise to eliminate debt, but he advises building up an emergency fund first. This supply of cash should cover at least three months (but up to six months) of living expenses and should only be tapped into for real emergencies like car problems, health issues or job loss.
While carrying debt isn’t ideal, preparing for an uncertain financial future is even more beneficial than eliminating a deficit that you are already on course to bring to zero.
Know where you can tighten the belt
Sometimes your employer runs into troublevand you receive a pay cut, but it’s not the end of the world.
Kristen Cox of The Muse advises that you cut out any unnecessary expenses you have before you opt to stop saving money. Though savings interest rates might not be the greatest, any money saved is an opportunity to gain a little bit more from your bank every month. Even if you’re only putting away a bit at a time, adding to what you have squirreled away in your emergency fund might make a big difference if there are more bumps in the road ahead.
It might be sad to have to stop eating out or purchasing new clothes because of budgetary constraints, but it’ll make you happier and more secure in the future if you run into harder times.
Find out how you can use a personal health savings account to help manage healthcare expenses and plan for future needs.
Make it automatic
When your income shrinks, having part of your paycheck divert to your savings account is especially helpful because what you see on payday will be what you have to work with after savings have already been set aside.
Ramit Sethi of I Will Teach You To Be Rich says that automatic savings are also a good idea since many Americans think budgeting is smart, but not done on a regular basis. Growing your savings account with little to no monthly effort on your part will make sure it gets done, but it’s also worth considering increasing the amount taken out of your checks whenever you receive a pay raise.
More Tips for Smart Financial Planning
By having a plan no matter if your paycheck goes up or down, you can ensure that changes to your income don’t drastically alter your financial security.
Setting a budget is another good place to start toward managing your expenses and saving for the future. Learn more about creating a successful budget here.
Published by Minster Bank
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