5 reasons why a pay raise might not make you richer
When you got a pay raise, what hopes did you have for this new money in your budget? Maybe you thought you’d have enough money to put toward your financial goals, such as saving more or paying off debt.
But now, all your efforts to manage your higher income feel like you’re spinning your wheels. Any gains you saw when you started earning more have disappeared — and you don’t seem to have anything to show for it.
If you’re earning more than before but feel as broke as ever, you may be financially stuck. Here are some common issues that could be blocking your financial progress, even as you’re making more money.
1. You’re missing your main money motivation
A growing savings account or shrinking debt balance aren’t inherently rewarding for most people. The typical person probably doesn’t find it exciting to manage money.
If you feel the same, then improving your finances might not be a motivation for you. But remember it can allow you to pursue the bigger goals that you care about. By making the connection between your bank accounts and your aspirations, you’ll see why managing your money matters.
Consider a major life step you’re working toward, such as starting a business, moving in with a significant other, becoming a parent, or buying your first home. You may want to achieve financial freedom and reduce the stress you feel over money. Then, determine the financial steps you’ll need to take to achieve the goal. Having a financial plan built around what you want out of life will keep you motivated.
2. You’re spending mindlessly
As you earn more, it’s natural to be less strict with your budget and spending. But this relaxed approach can turn into mindless spending when you buy items based on impulse, convenience, or even boredom, rather than on what’s important to you.
This overspending can show up in two areas: eating out and entertainment. The top 20% of income earners spend nearly six times as much on alcoholic beverages than the lowest 20% of earners, according to a 2017 analysis by Business Insider. Higher earners also spent 5.7 times money more on reading and 4.7 times more on entertainment.
Revisit your budget, and audit your expenses to see which nonessentials are eating into your spare cash. Practice being mindful with your money by checking in with yourself whenever you spend to ensure that your purchases align with your bigger money goals.
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3. You’re deep in debt
Whether you have six-figure student loans or credit card balances that are out of control, high debt payments can feel like a financial trap that not even a higher salary can help you escape. You might not feel like you’re in a crisis, but your debt could be holding you back from making the financial progress you want.
If your debt payments are high compared with your income, consider strategies that can help you manage them. You might want to hit the reset button on your debt through student loan consolidation. With this option, you might be able to lower your monthly payments and interest rate.
With a decent income, you likely can find money in your budget to make extra debt payments, too. The debt snowball and debt avalanche methods can help you pay off debt in smarter, faster, and cheaper ways. And with each loan you pay off, you also will eliminate a monthly payment and increase your cash flow.
4. You don’t know what to do with money
Earning more money doesn’t mean you automatically know what to do with it. As your pay increases, you’ll have more money to manage — and you’ll need to update your financial strategies to keep up with it.
Start expanding your personal finance knowledge, and you’ll find ideas and strategies to help you do more with your money. It could be as easy as picking up a new book about personal finance or subscribing to a podcast that talks about money.
Learning more about money will equip you with the knowledge to transform your higher paychecks into financial security and lasting wealth. You may find yourself making more informed decisions about your money and building sustainable wealth faster.
5. You’re falling into the comparison trap
Perhaps you question yourself and your financial situation when you feel you’re falling short. This could be a sign you’ve fallen into the trap of comparing yourself to other people or hold yourself to an unrealistic standard.
For example, you might wonder why other people have a nicer lifestyle or fewer money worries than you. It can feel like no matter how financially comfortable you get there’s always someone else who appears to be doing better.
Such irrational money thoughts and feelings of discouragement don’t motivate you to keep working on your finances. Instead, they blind you to the progress you’ve made and can leave you feeling powerless.
Try to practice recognizing this trap and working your way out of it. Keep a money journal or other record of your financial wins, and use it to remind yourself of the progress you’ve made. If you compare yourself to others, remind yourself that you may not always have everything you want — but with a focused effort, you can achieve your most important financial milestones.
Make your money work for you
Money alone won’t solve financial problems. You may have a decent income, but you need to actively manage your money to make the financial progress you want. If you’re stuck living paycheck to paycheck even as your earnings grow, it’s time to make changes.
Identify a financial goal that will build lasting wealth, such as upping retirement savings, paying down debt, or building an emergency fund. Then tweak your budget and reallocate funds toward your main money goal. You might be amazed by how fast you see results.
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