by | Jan 24, 2018 | Personal Finance | 0 comments


Due to the new Tax Cut and Jobs Act, just about everyone will begin feeling a “raise” in their paycheck in the next month.

In my experience, saving your raise could be one of the smartest things that you do financially. It may surprise you, but little bits do add up over time.

Where and how to save your raise is another important question. How do you use this opportunity to your advantage?  It all depends on the goals that you have. A little forethought can help you put some power behind those goals and make you feel like you’re making real progress.

Here are the top 3 ways to save your raise that I have seen in my experience with clients (no matter what stage they are in their financial lives).

1.  Direct money into a savings account with a specific purpose. Personally, I don’t think you can have too many savings accounts, as long as each one has a clearly defined goal. For example, I often advise clients to start a “Christmas/Holiday” or “Gifts” savings account.  This can help you get ahead of the holiday glut by saving up throughout the year.  You can have multiple savings accounts for multiple goals; the key is to give each savings account a very specific purpose. Doing so helps you stay focused and moving forward.  It’s especially exciting in my experience to watch your nest egg grow and see the progress you make towards your goal. I have a client who saved up enough money to purchase her first house doing this.  How?  Most banks have an automatic savings contribution feature that you can set up online. Set it for a day or two after your paycheck hits your bank account, and it’s likely you won’t even miss it.

2.  Direct some extra money into your retirement savings. You can do this by increasing your payroll contribution to your 401K or 403B (usually a simple conversation with HR). Or it could be increasing your contribution to your IRA or Roth IRA by talking to your financial advisor. Any way that you do it, this will help you on your journey to financial freedom.  Give your future self a reason to smile.

3.  Pay off debt. Let’s face it, debt does not feel good, and in fact, it gets worse the longer that it drags on (not to mention more expensive). If you have a raise, you have an opportunity to direct some additional money to pay off a debt that is hanging over you. How? Increase the monthly payment that you are making towards debt and if at all possible, set it up on auto pay.  For those of you nearing retirement, special focus should be paid on the mortgage. As I have said before, paying off the mortgage by the time you retire should be mandatory in your retirement thinking.

And there you have it: 3 smart things to do with your unexpected increase.  Funny how making smart decisions with a little extra money can ultimately lead to bigger payoffs of financial freedom and a feeling of security. Go forth and be prosperous!

Shadowridge Asset Management, LLC does not offer tax planning or legal services, but may provide references to accounting, tax services or legal providers. They may also work with your attorney or independent tax or legal advisor.