Promotions and Money: Time to Review

Ray’s Take: Congratulations on your promotion! You just took another step on your career path. Now you should take time to be sure you are on track with your financial plan based on your new situation.

First take a look at your tax withholding. Calculate whether or not you need to adjust your W-4 form based on your new income level. If so, go ahead and submit an updated form to your HR department right away.

Also keep in mind that some job-related expenses could be tax deductible. If your new job means you work from home, wine and dine clients or drive to off-site locations, you may be able to deduct these expenses. Consult a tax expert to assist in this area.

Second, up your retirement plan contributions before lifestyle absorbs all of your increase. If you’re already maxed out, set up a systematic nonqualified investment. Your new position may include vested company shares. These restricted stock units usually vest over time, meaning that you gain ownership of those shares over a period of time. If this is the case, contact your HR department to obtain a vesting schedule. This information can be very important should you leave the company at some point.

If your promotion included a large bonus or profit-sharing check, be sure to pay attention to the date that the payment will be issued. If the payment is issued before the tax filing date, you may be able to use those funds to make an elective deferral contribution to plump up your retirement accounts and possibly reduce taxes.

Sometimes a new position may require longer hours or travel. Evaluate how much additional time your new job may take and calculate any additional costs associated with those longer hours or travel. You may find you will need to pay more in childcare costs or eat out more often. It’s a good idea to include any additional expenses in your budget.

By considering these basic steps, you can take advantage of the additional income associated with getting a promotion. The trick to making your pay raise work for you is to plan properly.

Dana’s Take: When we get a raise it’s human nature to first think about what we can buy instead of how much we can save.

Why is doing the smart thing always the hardest? Frugality has been the watchword for years now. And we’ve all tried to adhere to it. So spending the extra money may seem very tempting. After all, it’s above and beyond what we’ve budgeted for. Right?

A change of salary is the perfect time to sign up for automated savings options at work. Some bigger corporations match employees’ savings – a double bonus.

Take a look at your finances and figure out a way to cover all the bases – save, pay down debt and treat yourself a bit. After all, a raise is cause for celebration.

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