The Holy Trinity of Getting a Raise

The Holy Trinity of Getting a Raise

Getting a raise is a very exciting time for all of us.  We start picturing all the new things we can purchase or do with our newfound wealth.  We can increase our lifestyle, buy more things, give more away, and the list goes on.  As a financial advisor, we certainly get asked the question constantly of what to do with our raises.  Good news for you, I am quite opinionated here and have seen this play out thousands of times.

I call it the holy trinity of getting a raise, as I believe there are three things we should do any time we get a meaningful raise.  I won’t speak to percentages, as that is pretty specific to one’s unique circumstances.  However, I will suggest you put real resources into my three buckets.

Holy Trinity 1- Invest

Shocker to hear me say this right?  Well, the reality is most of us need to invest more.  Furthermore, if we spend every extra dollar we make then we will fall into lifestyle creep.  One day you will wake up saying I don’t get why I can’t afford my lavish lifestyle in retirement. 

The simple answer is if you are still saving at the rate you were when you were making $50k/yr and now you are making $300k/yr it seems obvious what the issue is.  I highly recommend you take a healthy portion, ideally at minimum a third, and invest it for your future.  This can mean increasing your 401(k), maxing out Roth or Traditional IRAs, or even starting/increasing investments to a non-retirement investment account. 

Holy Trinity 2- Save

I am a big fan of building up that rainy day fund.  Chances are you want to have a good slush fund both for emergencies or whatever that next big purchase may be (i.e. car or new windows).  These can be a healthy down payment and if you are able to increase your monthly flow to your savings accounts and balance in these accounts it creates a larger, much-needed, buffer between your future retirement savings and your current living expenses.  I’m a big fan of trying not to touch your investment accounts unless you absolutely need them.  If instead, you can plan accordingly to save for each expenditure separately then your future savings you are in a great position.

Holy Trinity 3- Spend

All work and no play makes Jack a dull boy.  Besides that movie scaring the living heck out of me as a kid, it comes with a great lesson.  You are indeed working hard and want to reap the rewards of your labor.  If all you do is work hard and save more life will be, well, quite dull.  Go take a chunk of your new cash flow, assuming you aren’t way behind the 8 ball, and spend it on whatever your little heart desires.  It can be driving nicer cars, doing more family vacations, buying a bigger home for your expanding family, or honestly literally anything you want to spend it on. 

I never judge what people spend their discretionary dollars on.  Rather, our job is to make sure you are spending the appropriate amount of money on yourself to sustain your lifestyle.  Literally, everything else you spend on is irrelevant.  I want my clients and friends to live as fantastic a life as I do.  I also however want to make sure that they are spending responsibly.  That said if you at very least break my holy trinity into equal thirds you should always be in a great financial position.

Final thoughts

One of the things we spend a lot of time working on with our clients is getting things like this calibrated just right for each client.  It is like baking a cake with a lot of recipes.  Too much of one thing may seem harmless until you realize that vanilla extract, although smells incredible, should be used very sparingly, or else your cake will be putrid.  The same general philosophy with finances, is the measurements don’t have to be exact, but should be pretty close to getting the desired outcome you are looking for.  We have the advantage of fancy expensive software combined with decades of real-life experiences to advise from. 

As always stay wealthy, healthy, and happy!