Whether you work for a company or for yourself, it’s up to you to give yourself a raise. Otherwise, the numbers don’t look great. In 2016, most U.S. firms gave out raises equal to 3% of their employees’ salaries. That might sound okay, but considering that inflation for the cost of living rose 2.1% that same year, that leftover 0.9% is looking pretty measly. Unfortunately, inflation for 2019 is much the same annually.
How do you give yourself a raise?
It boils down to three options: make more money, spend less money and budget, and/or pay off your debts to stop paying interest. All of these options take work, diligence, and planning—after all, you have to work to get a raise.
How to give yourself a raise in three steps
1. Make more money
Cue eye roll, but hear us out. If you work for yourself or if your company doesn’t have reviews and raises on the horizon, it’s up to you to increase your income.
Consider picking up a part-time gig, selling crafts or items you’ve collected, or working out a side hustle and odd jobs. This could change your perspective on your career, happiness, and finances—and may open new opportunities you never thought existed. Or, it could be a temporary solution that helps you make ends meet until your company or business can afford another round of raises.
2. Spend less and budget
Technically, you don’t need to give yourself a raise in order to make more money. In fact, the saying that people who make more money, spend more money can quite easily hold true if you let it. But it doesn’t have to be your reality.
The trick is to get a holistic grasp of your finances. Know how much money you’re making and exactly where it’s going—and budget or restrict your unnecessary spending. Perhaps the quickest way to give yourself a raise is to stop spending frivolously and start saving. If you set aside savings every month in an account that earns interest and makes you passive income, you may just be giving yourself that raise after all.
3. Pay off your debts quickly to avoid monthly interest
If you’re in debt, the single best way to give yourself a raise is to get out of debt as quickly as possible. Why? Because on top of the amount you borrowed, the monthly interest you’re paying could be equivalent or even exceed the dollar amount you’re hoping for with a raise.
Let’s look at the numbers. Pretend you owe $5,000 on your credit card and have an annual interest rate of 20% with 12 monthly payments. Let’s say you plan to pay your debt in full in just one year.
Over the span of the year, you’ll pay a total of $558.07 in interest, plus the balance you owed. You pay off a majority of the interest in your first payment ($463.17) and slowly the amount of monthly interest paid decreases and you begin to chip away at the amount of the actual loan.
If it takes you two years to pay off that same loan, you’ll pay $1,107.50 total in interest. Three years, $1,689.45. Four years, $2,303.29. After five years of that debt, you’ll pay just shy of $3,000—that’s 60% of your principal amount that you paid in interest alone. You may spend less every month to bring your credit card down, but you’ll pay for it in the long term.
Now say you wanted a 5% raise and currently make $50,000 a year. That’s an extra $2,500 a year. As you can see, the faster you pay off your debt, the quicker you can give yourself a raise.