The start of a new year is often when last year’s hard work pays off in the form of pay raises or cost of living adjustments. Instead of using that money to buy a new pair of shoes or the latest tech gadget, think about your wage increase as a savings vehicle for this coming year.
Use your wage increase to invest in the full amount that your employer will match to your 401(k). If your boss handed you $500, would you turn it down? Of course not! Getting your full employer match for your 401(k) is no different. Since 401(k) contributions may be deducted from your income before taxes, it doesn’t affect your paycheck as much as you may think.
If you already get the maximum contribution from your 401(k), consider investing in a Roth IRA. Roth IRAs don’t lower your tax bill now, but provide tax-free money for retirement if not withdrawn before age 59½.
If you are already contributing to your retirement fund, consider placing your wage increase into a savings account. The average family doesn’t have the recommended savings for financial emergencies. It’s wise to have at minimum three to six months of living expenses in a savings account you can easily access in the event of a financial emergency.
Converting your wage increase into a savings vehicle is a smart way to increase savings without feeling like you are cutting down spending – plus the pinch on finances isn’t as noticeable. Make your hard earned raise something that can help you achieve your savings goals – you’ll be thankful in the long run!
Do you plan on increasing your savings? If so, do you plan on increasing 401(k) contributions, establishing a larger emergency fund, or have a different savings goal? Let us know in the comments below.Investment products are not a deposit, not FDIC insured, not insured by any federal government agency, carry no bank guarantee, and may go down in value.