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If you are one of those people who have been asking yourself How do I ask for a pay rise?, The good news is, you no longer need to. With the economy which is looking as promising as ever, companies are starting to loosen their belts by promising 401(k) matches and annual salary increases. This means, that if you are one of the chosen ones, at the end of the year, you can expect to be informed by your employer regarding your pay raise. Having a pay raise will surely excite you. You might be thinking of where to spend the extra money or you are by now already adjusting your budget to match the amount on your paycheck. Doing such things is called lifestyle inflation. Sure, there is no problem with that since you can afford it, but there is no need to spend the extra money if you were doing okay without it before. Listed below are some of the possibilities which you could do with your pay raise.

1. Pay off your debts- Most people have debts and it is no secret that most of them are having a really difficult time in paying them off. When you receive a pay raise, your first reaction would probably be relief. Why? Because you will have more money to spend on yourself. As this might be okay, it would be better if you use your pay raise to increase the amount of your regular debt payments. In this way, you can get out of debt much faster, increase your credit score and lower your debt-to-income ratio.

2. Allot it to your retirement savings- Avoid blowing your increase on the fancy things that you want and put it on the things that you will benefit from in the long run like your retirement savings. A tip to speed up your retirement savings is to increase the amount you contribute to your 401(k). Do not worry about losing the money as you were getting by fine without the raise before. This is a good way to make secure your future. If you do not have a 401(k), put the money towards your IRA or other investments.

3. Save or invest your raise- If you already sorted out your 401(k) and are debt-free, you can use your pay raise to invest or save. So, instead of spending it or increasing the amount you allot for your necessities, save the money to allow you to reach your goals faster. You can save it to add to your down payment for a house you have been eyeing on, you can put up a college fund for your kids or you can open up a business. Whatever goals you have, your pay raise can make it easier and faster for you to achieve them.

4. Loosen the budget- As mentioned earlier, if you are doing well with your budget before, there is no need to spend your raise on that. However, if you are struggling to make ends meet, you can allot a portion of your savings to your budget. Try your best to save some of your savings if you can, so that you can improve on other areas that need it also.

5. Reinvest the dividends- Take your cue from one of the most popular strategy used in stocks. When a company pays you, the most logical thing people do is to divide the pay into more shares of the stock. You can do this with your pay raise as well. You are rewarded a pay raise because of your excellent performance at your job. For you to further enhance your skills, you can use the raise to enroll yourself in new classes or attend seminars to reinvest yourself. Heck, you can even buy yourself some new suit or office clothes or laptop, anything that will improve your productivity, your office personality and work to make sure that you have high chances of getting future raises.

6. Reward yourself- Keep in mind that this should only apply when you are not in debt, you have maxed out contributions to your 401(k) and when you are in a healthy financial shape. Check your credit scores and report once you receive your pay raise so you can sort things out and figure out which needs to have improvements first. If everything has been taken cared of, you can go ahead and spend the money on things that you want.

Getting a pay raise is good news. It allows you to spend on things that you want if you are in a good financial shape and it brings you relief if you are struggling with your day-to-day budget. The most important thing is to learn how to use it wisely so that you do not end up wondering where you spent it on. Most importantly, a pay raise allows you to reach your goals faster and gives you the chance to save for your future. Learning how to use your pay raise will also teach you how to be financially responsible and when you are financially responsible, you will be assured of a comfortable life without compromising any of your future goals.