It’s easy to get pumped about a new job. After all, it does come with an entirely new set of opportunities and of course, a new paycheck! Perhaps one that is bigger than the one you have had before. That is awesome!
I don’t mean to rain down on your parade but be very careful with that energy because one wrong step and you might quickly find yourself stuck in debt trying to crawl out of the hole.
So before you rush off to lunch or happy hour with your new colleagues, keep in mind that the choices you make today might very well be the reality of your life in the next 5 to 10 years. But here’s the good news: this could be avoided if you take the right precautions just like other financial setbacks. And that starts with knowing what can go wrong.
1. Immediately making a big purchase
I’m talking about a car or a house that requires maintenance. When you first receive your paycheck you will feel like you’re 10x cooler and richer than before. You might even feel like you don’t know what to do with that money, after all, it’s a new kind of problem.
The issue comes when you go out and make a big purchase immediately, thinking that you have enough to pay the instalments with the extra cash. What follows is that a part of this extra cash is now gone, plus the maintenance, repairs, and petrol will siphon away all the extra income you’ve got. And before you know it, you’re left at the same tight spot as before.
In short, don’t rush out immediately just to make that big purchase. Instead, have at least 3 months of buffer period to think about it.
2. Not starting to prepare for emergencies
An increase in your salary may send a signal to your brain saying that because of the increment, you’ll be fine should an emergency occur and that you can easily make up for your retirement fund later. In most cases, this quickly slides into a short-term mentality where you’re only concerned about the day-to-day expenses. This false sense of security will hurt you in the long run.
Fix this by looking at an increment as a way to supercharge your journey to your financial goals. Instead of having to spend 3 years to build that emergency fund, now you might only need 2 years. So once your emergency fund is set aside, you can then use your extra money to support your other goals such as starting a new business or support your other hobbies.
3. Using credit
Again, this goes back to the feeling where you think you have more to spend now. So now that you are receiving a little more money, you might be tempted to spend more money upfront and pay for it later when your new paycheck arrives. However, what all of this is going to do is get you caught up in the web of credit card companies.
If you can make sure that you will pay off this bill within the same period, then, by all means, use credit as it offers more safety than debit and some rewards to go along.
Another perspective to consider is that because you’re having a bigger paycheck, just wait until you get the money. You don’t have to rush it because you can save up much quicker now.
4. Ignoring your budget
This goes for both if you’re getting a raise or a pay cut. Make sure that you’re adjusting your budget to account for the changes in your income. Not just that, take the time to also look into how much your monthly expenses are (commuting, food expenses, or even a wardrobe change).
Ideally, you want to account for all the changes so that you have an idea of where you can reduce some of the expenses. It’s a matter of optimising it for your budget calendar.
5. Forgetting about the taxes
Planning for taxes
Nobody wants to hear this but more money coming in means more money going back to the government. It’s important to have an estimation as to how much more taxes you will be paying, especially if you enter a new tax bracket. Avoid surprises, they don’t bond well with financial planning.
This will help you be more aware of how much to set aside each month for tax purposes instead of having to worry about it only when tax season comes. Then according to this, you need to once again, adjust your budget. These are the items that you cannot escape so make sure that you’ve considered them before going on a splurge.