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So You Got a Raise… Now What?

  • Writer: liveyourmoneystyle
    liveyourmoneystyle
  • 5 hours ago
  • 2 min read
Plan Your Raise

It's that time of year when a lot of companies give out annual raises  -  and while a bigger paycheck is worth celebrating, it's also one of the easiest times to fall into a trap: lifestyle creep. You get the raise, your spending quietly adjusts upward, and a year later your bank account looks exactly the same as it did before.


One year of that? Not a disaster. Year after year? Your wealth never grows  -  and the habit compounds (in the worst way).


In this episode, Meghan and Maddie give you a practical, no-fluff formula to make sure your raise actually helps you level up  -  financially and enjoyably.


Step 1: Know what you're actually working with when it comes to your Raise

Most people think about their raise in gross terms. But before you make any decisions, you need to know what will actually land in your bank account after taxes.


Here's how to figure it out:

  • Pull up your most recent tax return and find your effective tax rate

  • Multiply your raise by that rate to see how much goes to taxes

  • Subtract to find your actual take-home


Example: $2,500 raise × 25% tax rate = $625 in taxes → $1,875 actual take-home

Break that down by paycheck  -  bi-weekly that's about $72/paycheck; monthly it's about $156/month. Now you have a real number to work with.


Step 2: Use the 3-Part Formula

Once you know your real take-home, here's how to split it:


50% → Future You (~$938/year) This goes toward building your financial foundation:

  • Retirement accounts (401k, IRA)

  • Emergency fund

  • Paying off high-interest debt


Good news: if you contribute to your 401k as a percentage of salary, this happens automatically when your salary increases. If you don't have that set up yet  -  this is your sign.


30% → Needs (~$563/year) This covers essentials that have genuinely gotten more expensive or areas of your budget that have been stretched thin  -  groceries, insurance, rent increases. This is not about upgrading your lifestyle; it's about properly funding what you already have.


20% → Wants (~$375/year) This is the fun part. You worked hard for this raise  -  enjoy some of it intentionally. A monthly dinner out, a subscription you've been wanting, a small upgrade to something you use every day. The key word is intentional. Consciously choosing how to spend this 20% is what separates smart celebration from mindless lifestyle creep.


The Flexibility Framework


These percentages are a starting point, not a rule. Adjust based on your situation:

  • High-interest debt? → Shift more to Future You (70/20/10)

  • Needs are really stretched? → 40/40/20

  • Financially stable? → 60/20/20


What matters isn't the exact split  -  it's having a plan at all. Without one, raises disappear. With one, you build wealth and still enjoy your success.


This Week's Action Steps

  1. Calculate your actual take-home from your raise (after taxes)

  2. Decide on your split  -  even a rough plan is better than none

  3. Set up automation wherever possible (increase your 401k %, open an automatic transfer to savings)


Future you will be so grateful.


Resources Mentioned

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