We are audience supported - when you make a purchase through our site, we may earn an affiliate commission. Learn more


The 3 Most Important Things to Do with a Big Pay Raise (Plus, a FREE Pay Raise Calculator)

A Money Spending Plan: How To Make The Best Of Your Pay Raise

Getting a pay raise is always a welcome event, but it’s important to know what to do with the extra money in order to make the most of it. Whether you’re looking to save for the future, pay off debt, or just enjoy some of the finer things in life, there are a few key things you should do first with a big pay raise.

In this article, we’ll outline the three most important things to do with a pay raise, and provide a pay raise calculator to help you plan and manage your finances.

With these tips and tools, you can take control of your finances and make the most of your hard-earned pay raise.

Keep reading for more!!

“Show me the money!”

– Rod Tidwell in Jerry McGuire movie

When you get a pay raise or come into extra money, it can be tempting to spend it all.

However, there are some important things you should do with that money in order to ensure your long-term financial security.

So what are the 3 things you need to focus on when you get a big pay raise or come into money?

For nearly thirty years as a financial planner, my clients always knew my rule of thumb when it came to increases in salary, business income, or other large windfalls of money. We called it the “Rule of Thirds“:

  1. First we always have to take an extra cash and payback our yesterday. We need to take the new funds or increased salary and be sure our first spending of that money is budgeted to paying your taxes, making debt payments on previous living expenses we paid for on a credit card, or other debts.
  2. The second third goes to your financial plans, financial security and financial goals for your rainy day fund, future additional savings and retirement funds.
  3. The final stage is the most rewarding of all – take some of the new extra income and start spending that money and additional cash on things you really want. Is it a vacation, a new car, new clothes – it’s your call – but this financial step comes last.

You can make your own customized plan to fit your financial and personal needs.

What to do with a pay raise or inheritance Animated
What to do with a pay raise or inheritance


When you get a big pay raise, you might be asking “what do I do with my annual pay raises?“. The MRM “Rule of Third” is a guide on how to make the most of your raise in pay.

  1. 1/3 for Yesterday – pay taxes
  2. 1/3 for Today – Save for your future
  3. 1/3 for Tomorrow – REWARD YOURSELF!

Before you get into the rule of thirds though – basic financial principles should always be followed first:

First, you should create or update your personal budget. This will help you to track your additional cash flow and monthly expenses so that you can make sure your spending habits are within your means. It is also a good idea to put some of the extra money into additional savings. This can help you in case of an emergency or unexpected expense.

You can use popular budgeting apps, a bill tracker, or the Kakeibo budgeting method to help.

You should also consider investing some of the money. This can help you to grow your fund balance and wealth over time. There are many different ways to invest, so you should research what options are available and decide what is right for you. It could be mutual funds, individual stocks or bonds, index funds, ETFs etc.

Finally, you should think about using some of the money to improve your financial security. This could include paying down debt, an additional emergency fund, or investing in life insurance. Making smart choices with your money can help you to achieve your financial goals. When you get a pay raise or come into extra cash, be sure to use it in a way that will benefit you in the long run.


What Should I Do With My Salary Increases To Avoid Lifestyle Creep?

Hey, congratulations – you got a big raise in pay.

  • What do I do with $5,000 or $10,000 pay raises?
  • What do I do with a $30,000 raise in pay?
  • How much of my annual salary raise should I save?

There are a lot of things that you could do with your new increase wages.

You could use it to improve your lifestyle, save up for a rainy day, or invest in your future. It all depends on your priorities and what you want to achieve in life.

If you want to improve your lifestyle, you could use your pay raise to upgrade your home, buy a new car, or take a luxurious vacation.

If you’re more interested in saving up for a rainy day, you could use your raise in pay to build up an adequate emergency fund or invest in a solid financial future.

And if you’re looking to invest in your future, you could use your pay raise to pay down debt, start a business, or invest in your education.

It is all about what is important to you and your financial goals. No matter what you decide to do with your pay raise, make sure that it aligns with your financial goals and values. That way, you’ll be sure to make the most of it. And know how it fits into your financial plan as well.

The good news is you received a big pay raise. The bad news is, you are not alone in having questions of what to do next. Most workers are now asking “now what do I do with my raise in pay?

Related Reading: How to avoid becoming a lifestyle creep victim

Related Reading: Don’t keep up with the Jones’s

How To Make The Most Of Your New Funds or Salary Increasea Third

Pay raises are always a welcome event. It’s an acknowledgement of the hard work you’ve put in and a sign that your employer values your contribution to the company. But what can you do to make the most of your raise in pay?

  1. First take a look at your annual salary increase percentage. If you’re getting a 3% pay raise, that’s great, but it’s not life-changing. However, if your raise in pay is in the 10-20% range, then you can start to think about making some major changes.
  2. Second, think about how your pay raises will impact your paycheck. If you’re pay is rising $50 per week, that’s an extra $2,600 per year. That’s a significant amount of money that can be used to pay off debt, save for a rainy day, or invest in your future.
  3. Finally, don’t let a raise in pay go to your head. It’s important to remember that a higher income is not a guarantee of continued employment. If you start to slack off or make poor decisions, you could find yourself out of a job.

So, use your pay raise as motivation to continue doing your best and to stay focused on your goals. By following these tips, you can make the most of your pay raises and use it to improve your financial situation.

The Best Way To Maximize Your New Salary Rule of Thirds Budget

The first thing I will tell you is to use the MRM “Rule of Thirds”. That is the Michael Ryan Money Rue of Thirds, rules or criteria for raises or windfalls of money that you get. Percentage rates of your pay raises and how to allocate them.

  • One third of your pay raise percentage goes to yesterday. This is automatic, regardless of the type of raise or amount of pay raise you get.
  • One third of your increased wages will go to today.
  • And the last one third of your new annual wage will go to tomorrow.

First thing you need to do is revisit and revise your supplemental spending plan.

I will use the following assumption for the hypothetical person who just received a $10,000 pay raise and is now earning $100,000 per year. Why those numbers? Because we are talking concept here, and let’s keep the numbers nice and round… To calculate what YOUR rise in pay will be, see the pay raise calculator below.

MRM Rule Of Thirds


That is, you will pay taxes. You may or may not pay 1/3 of your paycheck in actually taxes. Congratulations if it is higher, but it is most definitely lower. The first thing I want you to do when you get pay raises is to speak with your tax advisor – you may be in a higher tax bracket. You may even need to adjust your income tax withholdings with your employer. If you want to calculate the taxes yourself, feel free and check out this paycheck calculator. So we are setting aside 1/3 of your additional income to taxes – we will get back to this…

In addition to taxes, this is the time to make late payments to old debt payments that you fell behind on the monthly payments. You may even want to make some additional interest payments or principal payments to get rid of that debt now as well!


I am a former Financial Planner, so what is your guess what I mean when I say towards “tomorrow”? Yes, your future. We will re direct 1/3 of your new paycheck towards your future self.

Pay Raise Green Road Sign

If you are already saving towards a 401(k), you currently save x% of your pay towards that. So with a new windfall of money, you will continue to invest the same percentage towards your 401(k). Now we need to increase your retirement savings by using some of your raise in pay. The order I would consider is similar to Dave Ramseys 7 Baby Steps


The fun part, reward yourself!!! The reason I save this for last is that this is the mistake most people make when they get a windfall of money. They immediately spend it on today, and today only. The key is, you earned it – but you still want to make smart financial decisions and reward yourself today without punishing your future self.

What would you like today that you always felt your spending plan may not have had enough room for? A vacation? Hobbies? Eat out more? Go ahead, you earned it.

In a sense, this section acts as an annual cost of living adjustment for you, automatically. This will help you keep up with inflation.

Calculating Pay Raise – A Pay Raise Calculator

If you’re like most people, you’re always looking for ways to increase your earnings. One way to do this is to ask for pay raises from your employer. But how do you know if you’re really due for a raise, and how much should you ask for?

There are a few things you should take into consideration before asking for a pay raise. First, think about how many hours you work each week and how much you earn per hour. If you work a lot of overtime or put in extra hours, you may be able to justify a higher rate.

Second step, consider your annual salary. If you’re paid hourly, multiply your hourly rate by 2,080 (the number of hours in a year). This will give you your actual annual salary. Once you have your annual salary, you can use a pay raise calculator to figure out how much of a raise you should ask for.

Try our annual salary to hourly wage calculator

The calculator will take into consideration your current salary and the percentage increase you’re asking for. It will also give you a range of what is considered a fair salary increase. Keep in mind that your employer may not be able to give you the exact raise you’re asking for. But if you have a good relationship with your boss and you’ve been performing well at your job, you may be able to negotiate a raise that’s close to what you want.

Calculating Pay Raise: Click either tab below and use the Annual Income Calculator, and then the Pay Raise Calculator

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper mattis, pulvinar dapibus leo.

Calculating Pay Raises – How to Calculate Pay Raises Manually (2 step guide)

The first step is to calculate what your current hourly wage is. To do this, take your weekly salary and divide it by the number of hours you work per week.

For example, if you make $500 per week and work 40 hours per week, your hourly wage is $500/40, or $12.50. Once you know your current hourly wage, you can calculate what your new hourly wage would be with a raise.

To do this, simply multiply your current hourly wage by the percentage raise you’re hoping to receive.

For example, if you’re hoping for a 5% raise, you would multiply your current hourly wage by 1.05. In our example, that would give you an hourly wage of $12.50 x 1.05, or $13.13.

Now that you know what your new hourly wage would be, you can use that information to calculate how much more money you would make per week, per month, and per year.

To do this, simply multiply your new hourly wage by the number of hours you work per week. In our example, that would give you a weekly salary of $13.13 x 40, or $525.20.

Other Considerations of Pay Raises

Remember when we talked about taxes earlier? And I said you are likely not going to need all of the third to go towards taxes? Well, this section is why we created that cushion. There are a few other considerations to take into account

  1. Did you go into a higher tax bracket? Are you no longer eligible for certain tax advantages that you previously had? Be sure to check your federal income tax bracket first.
  2. You now need to look at your Disability Insurance and review it. With a higher salary, you need to increase your coverage – and that will unexpectedly cost more in premiums.
  3. With an increase in your current lifestyle (be careful of becoming a victim of lifestyle creep), you may need to review your Life Insurance needs as well. Do you need to increase your coverage, and again that will increase your premiums. Here is a free Life Insurance Calculator from non-profit Life Happens.
  4. Do you need to adjust your Liability Insurance coverage and increase that? Do you now need or want an Umbrella Insurance Policy?
  5. Get a quick look at how you might be able to save money on your insurance with PolicyGenius
  6. Lastly, it is time to go back to your Spending Plan, and make the necessary adjustments to update it.

I didn’t get a pay raise, but I want want: How to Ask For a Pay Raise

Pay Raise Letter Samples

A rise in wages is not always as simple as it may seem. In addition to the monetary value of the raise, there are other considerations that must be taken into account.

For example, a pay raise may come with additional responsibilities. It is important to consider if you are willing and able to take on these new responsibilities before accepting the raise.

Additionally, pay raises may also come with a change in title or position. This could mean more work or different work, or more hours, than you are currently doing. Again, you must be willing and able to take on these changes before accepting the raise.

Before accepting a pay raise, be sure to weigh all of the pros and cons. Consider the monetary value of the raise, as well as any additional responsibilities or changes that come with it. Only accept pay raises if you are willing and able to take on the new personal responsibilities and changes.


When you get a pay raise or come into additional money, it is important to think about what you want to do with it. You may want to consider saving some of the money, investing it, or using it to pay off debts. It is also important to create a budget to ensure that you are not spending more than you can afford. This will help you to maintain financial security and provide for yourself and your family.

If you receive a pay raise or come into extra money, it’s important to think about how you want to use that money. You should consider saving a third of the money for your future, paying taxes on a third of the money, and rewarding yourself with a third of the money. This will help you stay on top of your finances and maintain a healthy budget.


Revolutionize Your Finances & Invest in Yourself Today

Ready to take charge of your finances? Subscribe now for expert advice and gain financial knowledge!

Subscription Form (#3)

If you have made it this far – you probably appreciated the above article. As a thank you, please help me by:

  • Sharing the article with your friends on social media – and like and follow us there as well.
  • Sign up for the FREE personal finance newsletter, and never miss anything again.
  • Take a look around the site for other articles that you may enjoy.

Note: The content provided in this article is for informational purposes only and should not be considered as financial or legal advice. Consult with a professional advisor or accountant for personalized guidance.

Michael Ryan
Michael Ryanhttps://michaelryanmoney.com/
A former stockbroker, financial planner, and owner of my own financial planning practice and then a property & casualty agency. I have since retired and decided I want to help individuals and business owners by offering personal financial coaching. And now, I have started my blog - www.michaelryanmoney.com - to bring financial literacy to everyone. In a short time I have already been quoted and featured in US News & World Report, Business Insider, Yahoo Finance, and more (https://michaelryanmoney.com/home/press/) As a financial planner, I helped people from all walks of life. If you have questions about money, I will help you find the answers at www.MichaelRyanMoney.com
The post contains disclosure regarding affiliate links.
Affiliate Disclosure Link: We are audience supported - when you make a purchase through our site, we may earn an affiliate commission, such as through Amazon.

Subscription Form (#3)

Before you leave... Get Exclusive Updates! Subscribe to Our Newsletter!
Subscribe Now