Most definitely don’t increase your lifestyle. Then start the following steps. Use this raise as an opportunity to accelerate your financial goals.
- Get on a budget and give every dollar a name before the month begins.
- Don’t add any debt.
Step 1 Save 1000$ as a starter emergency fund. This is only a small cushion between you and life to cover unexpected expenses.
Step 2 Focus all of your attention to pay off your debts by listing them in order of smallest balance first this will give a psychological win every time you pay something down. This is the Debt Snowball method. Others will recommend the Avalanche Method
Step 3 Once you have paid off all your debt except a mortgage (if applicable) Increase that 1000$ starter emergency account to 3-6 months worth of expenses.
Step 3b (optional) You are out of debt and have a nice fully emergency fund. If you need to save to upgrade cars, renovations or save for a down payment for a home.
Step 4 Invest 15% of your household income into retirement accounts. Take advantage of matches that’s free money! After matches look at accounts that don’t require you to pay taxes upon withdrawal.
Step 5 Save money for kids college (if applicable)
Step 6 Put any extra money towards paying off your house. Paying off your house is a guaranteed return on investment equal to your mortgage rate.
Step 7 Once the house is paid off max out all tax advantaged accounts and build wealth.
More info : Dave Ramsey Baby Steps