Effectively Transitioning Your Budget Following Increased Income
In any case where you're getting a higher level of income than you had before, whether you're getting a raise affiliated with a promotion or getting a new job completely, it's important to take a proactive approach in reallocating your budget.
Disclosure: I'm Not a CPA or CFP
Disclosure: Please keep in mind that I am not a certified public accountant and that one is best consulted prior to taking action based on tax implications. I am not a certified financial planner. Any tax-advantaged discussion, investment discussion, or other primarily financially focused discussion is Adam's unprofessional opinion.
Determine What Your Current Budget Is & What You Want Your Current Budget To Be
Go here for a template on the subject using Google Sheets I've put together. If you find that your income and your expenses are far from each other, seek to be more accurate with your current numbers. Also, I recommend connecting your accounts to Mint.com (credit unions, credit cards, banks, etc.) so that you can more easily track your expenses. If you have credit card debt, other revolving debt (i.e. furniture) &/or if your credit score is lower than 740, I also recommend that you cease all spending on credit cards and shift to debit cards until your budget is consistently in a good place for at least a year after you've eliminated your revolving debt.
Assess Any New Expected Expenses
Especially if you have a new job, assess any new related projected expenses. For instance, will you be:
1. driving more (or less)
2. incurring business expenses (or other out of pocket expense differences related to your job)
3. insurance differences (i.e. employer match)
4. paying more for your housing
Develop Goals Prior to Income Increase
1. How is your emergency fund?
2. Are there any debts that you have that you'd like to pay off, such as a car loan or debt consolidation loan, especially if that debt incurs higher interest than your savings account at your bank (assuming you have a high interest savings account, which some banks don't have even if they have an interest accruing savings account; Synchrony Bank would be an example w/ a high interest savings account)?
3. Do you have all of the insurance that is best?
4. Are you meeting your savings goals?
5. Are you effectively meeting your investment goals, such as contributing the full amount for a Roth 401k for an employer match, and the full annual amount available on a Roth IRA?
6. Are you meeting your charitable contribution goals?
Develop Systems That Will Make for an Easy Transition
Once you've assessed where you'd like your new funds to go, be sure to have available multiple free bank accounts and, if you'll be getting the same income every month, have automatic payments going setup to make those goals happen without you even needing to think about it as long as they are set up appropriately. For instance, you might have separate accounts setup with automatic payments recurring following you getting your fixed income for the following:
Savings Account
emergency Fund Account
Mortgage/Rent Account
Investment Account
Student Loan Account
College Fund Account
Fluctuating Non-Discretionary Expenses Account (i.e. gas, water bill, electric bill, etc.)
Fluctuating Discretionary Expenses Account (i.e. restaurants)
Taxes (if all of your tax expenses aren't accounted for by your employer's paycheck and if you're unable to get them to pay more directly to the IRS)
Keep in mind that if expenses are at separate institutions, it can be helpful with budgeting since it's harder to pass money around.
Use a free option for budgeting like Mint.com to help track your multiple accounts and to establish budgets for various expenses where it's easy to track where you are in the month based on your budget for that expense type.
Implement Systems On 1st Paycheck
Once your first paycheck hits, establish recurring transfers to the appropriate accounts that meet your goals.
Reassess Your Systems 1 Month After Your New Income
The first month of your new income, watch your finances closely, and if you need to make adjustments to your budget, be sure to make those adjustments so that you are proactively planning ahead and acting according to your plan.
Related:
Debt Pay Off Before a Home Purchase
Saving on Taxes for Real Estate
Long-Term Financial Preparations for a Home Purchase & How Adam Can Help