It’s great that your hard work has provided you with a salary hike. But what do you do with the increased money every month? That increase in your salary might tempt you into splurging on unnecessary expenses, but it is important to use it to build a better financial future.
Increase in Salary: A two-way approach
For example, Rahul and Amit received pay increases after putting in a lot of work for over a year. They each used to make Rs. 60,000 a month as of last year, but now they make an income of Rs. 80,000 each month individually. After receiving a pay increase, Rahul spend this extra money on clothes, parties and other one-time events. On the other hand, Amit, his colleague, a smart and well-organized person, is planning to use money wisely and increase his investment.
Let’s talk about what Amit could do while planning his finances to build a good financial future for himself and his family.
Also read: What is the 15x15x15 Rule In Mutual Funds for NRIs?
5 Things to Do After Salary Hike
1. Pay off Debt
Settling your debt is very important as this opens up your financial future to focus on other important financial areas. Financial debts can include:
- Personal loans
- Credit cards
- Home loans
- Car loans, etc.
Paying off high-interest debts like credit cards and other loans is very important as this will give you space to think about other important financial decisions. Apart from this high interest rates can quickly increase debt costs that why paying them off early saves money. Once this is done you can use these funds towards saving for:
- Retirement
- Investing
- Building an emergency fund.
It is to be noted that high credit card balances and missed payments can result in penalties that are avoidable, and paying them on time improves your credit score and offers better credit choices in the future. Paying off high-interest debts first also brings a sense of accomplishment and relieves financial stress.
Also read: How understanding the Rule of 8-4-3 can turn your Rs 30,000 monthly into Rs 1.5 cr?
2. Build an Emergency Fund
You need to have an emergency fund, if you have one you are on the safe track, and if you don’t prioritize building one. It provides a lot more financial stability and a lot more benefits like:
- Financial security: During emergencies like job loss, medical emergency, car repair, etc. It gives you funds to cover all these emergencies without putting pressure on taking loans or relying on credit cards, which can lead to debts.
- Avoiding Debt: Without an emergency fund, people often borrow money to cover unexpected expenses. This can lead to high-interest debt and financial strain in the long run. Having an emergency fund allows you to avoid going into debt during emergencies.
- Maintaining Financial Goals: Emergency funds can protect your long-term financial goals. Without it, you may have to use the savings meant for other purposes, such as retirement or buying a home, to cover emergencies.
- Stress-free mindset: Knowing that you have money aside for emergencies reduces stress and gives you a free mindset where you can plan your finances better knowing that you are already prepared for unexpected emergencies.
3. Restructure your Finances
Once you know that you will have more funds than before, you can go back to your original financial plan and restructure it to your needs. If you have low target funds for your retirement, you can change that. Or if you wanted to buy something but couldn’t due to lack of finances, you can make a better financial plan to achieve that.
Restructuring your finances also means making the most of your savings and investments. This also involves putting more money into savings accounts, retirement funds, or investment portfolios to help it grow faster. You might rethink how you pay off debts, like focusing on high-interest ones or getting better loan rates through refinancing. Also, you could boost your emergency fund to feel more secure if unexpected expenses come up or you lose your job. Adjusting your finances after a raise helps you stay on track with your goals and build a stable financial future.
Also read: Top 5 NRI Mutual Funds for Retirement Planning 2024
4. Analyse your Investment Goals
It is important to analyze your financial plans for several reasons:
- Applying the 50% thumb rule: If your salary goes from 50,000 rupees to 1 lakh rupees a month, you can think of investing and saving 50,000 each month. This will give you a sense of financial stability and investing well will grow your money over time.
- Long-term investments: You can even invest in real estate or other entrepreneurial ventures. But you should always look for long-term investments that align with your financial goals and then invest in those. Otherwise one can even go with mutual funds investment for the long term.
Also read: Best NRI Investments in India: Top 10 Investment Options for NRIs/OCIs in India 2024
5. Focus on Investing
If your financial planning did not include investing in various forms like mutual funds, now is the time to consider it. Investing in SIP can help you achieve your financial goals faster and expand your financial resources for the future. Additionally, if you are already investing in SIP, consider increasing your investment amount with your salary hike. For example, If Amit was previously investing ₹10000 per month with a salary of ₹60,000, now he can consider increasing his SIP investment to ₹20,000 or more per month with ₹80000 salary each month. This is extremely important to plan and prioritize as your future outcomes depend on this investment.
Also read: 𝗕𝗲𝘀𝘁 𝗠𝘂𝘁𝘂𝗮𝗹 𝗙𝘂𝗻𝗱𝘀 for NRI in India 2024
Wrapping Up
Mindfully spending your money is extremely important for a secure financial future. Instead of spending excess money on one-time activities, you should rather pay off debts, invest better, revisit your financial planning, and keep funds for your emergencies and retirement.
Looking to Invest your Increased Salary in Indian Markets as NRI/OCI?
For Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs)who shifted to other countries for better opportunities, this salary hike presents an option to start utilizing the additional funds for investment in Indian markets.
NRIs/OCIs can now download the SBNRI App and choose to invest in different NRI mutual fund schemes in India with ease. You can also get detailed investment advice from experts at SBNRI. Also, visit our blog and YouTube channel for more details.
SBNRI is an authorized Mutual Fund Distributor platform & registered with the Association of Mutual Funds in India (AMFI). ARN No. 246671. NRIs willing to invest in mutual funds in India can download the SBNRI App to choose from 2,000+ mutual fund schemes or can connect with the SBNRI wealth team to better understand Mutual Fund investments.
FAQs
What to do after a pay raise?
- Here are 5 things to do after your pay raise:
- Pay off Debt
- Build an Emergency Fund
- Restructure your Finances
- Analyze your Investment Goals
- Focus on Investing
What to do after increment?
- Instead of spending excess money on one-time activities, you should rather pay off debts, invest better, revisit your financial planning, and keep funds for your emergencies and retirement.
What to do after getting salary?
- Here are 5 things you need to do after getting salary:
- Pay off Debt
- Build an Emergency Fund
- Restructure your Finances
- Analyze your Investment Goals
- Focus on Investing
