What to Do With a Raise (Example Numbers)

By Cedar & Ledger

A raise is one of the easiest times to make progress, because you're not used to the money yet. It's also when spending tends to quietly grow to match it. This guide shows how to find out what the raise really adds to each paycheck, check what already went up, and split the new amount on purpose before it disappears.

Every dollar figure here is a made-up example to show the math, not a typical raise or a recommendation. This is general information, not financial, tax, or investment advice. Your real take-home depends on your taxes, benefits, and deductions.

Quick checklist

• ☐ Wait for the first paycheck with the raise and find the real difference
• ☐ Check which of your bills went up since your last budget
• ☐ Pick your top one or two money goals
• ☐ Split the new amount per paycheck before it's spent
• ☐ Choose one upgrade on purpose
• ☐ Update your budget and check it again in a month

The steps below walk through each one.

Step 1: Find the real per-paycheck difference

The raise you're told is before taxes and deductions. What lands in your account goes up by less. The surest way to know is to compare your first paycheck with the raise to the one before it.

Example (made-up numbers): a raise from $52,000 to $55,000 a year is $3,000 more before taxes, or about $115 more per biweekly paycheck ($3,000 ÷ 26). After taxes and deductions in this example, take-home goes up by $85 per paycheck. That's about $184 per month ($85 × 26 ÷ 12) and $2,210 over a year.

If you're paid hourly, multiply the raise by your usual hours for a before-tax estimate, then check the real number on your next pay stub.

Step 2: Check what already went up

Before deciding where the new money goes, see if some of it is already spoken for. Rent, insurance, phone, groceries, and subscriptions may have crept up since you last looked at your budget. If your bills rose $30 a month since your last update, that comes off the top first.

Step 3: Pick your top one or two goals

A raise works best when it goes somewhere specific. Common picks:

• An emergency fund, if you don't have one yet. See Emergency Fund Basics.
• Paying off debt faster, starting with the debt you've chosen to target. See Debt Snowball vs Debt Avalanche: How to Pick One, or How to Pay Off Student Loans Faster for student loans.
• Saving for something planned, like a car, a trip, or yearly bills. For a home, see How to Save for a House Down Payment.
• Retirement, if your job offers a plan. Some people raise their contribution percentage when they get a raise so their take-home stays about the same; check your plan's rules and your own situation.

Step 4: Split it per paycheck

Decide the split now, while the money is still new, and set up the transfers for payday.

Example (made-up numbers), splitting the $85 per paycheck:

The split doesn't have to be fancy. Some people use a simple rule like half to goals and half to spending; the 50/30/20 budget example shows a raise is also an easy time to move closer to a target split. See How to Budget by Paycheck for lining transfers up with your paydays.

Step 5: Choose one upgrade on purpose

Spending some of a raise is fine. The trouble is when lots of small upgrades add up without a decision: a nicer phone plan, more takeout, a few new subscriptions. Pick the one thing you'd most enjoy, give it a number (like the $15 above), and leave the rest of your spending where it was. If a raise came with a new job and you've started buying lunch every day, How to Pack Lunches for Work on a Budget shows what that adds up to over a year.

Step 6: Update the budget and check it in a month

Change the income line in your budget to the new take-home, add the new transfers, and look again after a month. If a goal gets reached (say, the emergency fund is full), move that slice to the next goal instead of letting it fade into spending. How to Do a Monthly Money Check-In is a quick way to do that review.

A raise is ongoing; a tax refund is one lump sum. If you're planning a refund, see What to Do With Your Tax Refund.

Common snags

• Planning with the before-tax number. Use what actually lands in your account.
• Waiting to decide. After a few paychecks, the new money already feels normal and is harder to redirect.
• Forgetting bills that went up. Check them first so the split is real.
• Splitting it too many ways. One or two goals get done faster than five.

A simple way to track it

A note with your old and new take-home and where each part goes works. If you'd like a spreadsheet, the Paycheck Budget Planner ($7, Excel and Google Sheets) plans each paycheck's bills, transfers, and spending, so you can drop the new amount in and see where it goes (details). The free Starter Budget Sheet is a simple monthly budget for updating your income line (details).

Honest note: I make these templates and sell them under Cedar & Ledger, so I'd earn from a purchase. General information only, not financial advice.

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Related template: read about the paycheck budget template

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