What to do with your raise

Remember—you can only spend what you get after taxes

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From the November 2016 issue of the magazine.

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My husband just got a promotion that comes with a $20,000 bump in salary. What should we do with the extra money: Pay the mortgage quicker? Save it in RRSPs and TFSAs? Take a family vacation? Or maybe it should go towards our upcoming $3,000-a- month daycare bill.

—Jennifer, Vancouver

Congratulations! But before you start making elaborate plans, realize that $20,000 added to a $100,000 salary will amount to only an extra $1,000 per month after taxes. And that’s what counts—what you get to keep after taxes.

Start by looking at your financial goals and creating a time line, along with a realistic amount needed, to reach each goal. If your spending plan doesn’t include funding for more immediate expenses, such as the entire $36,000 annual daycare bill, then this extra money will have to be used for that. Or if you’ve been accumulating debt and paying higher rates of interest on credit cards, then a strategy to pay down that debt is an excellent idea. Only when you are able to meet your current expenses and have paid down debt should you consider adding to retirement savings.

The good news is that if you’ve been able to afford your past lifestyle costs on your family’s previous income—and aren’t creating any new debt—then this new increase can be used to fund other goals such as paying down the mortgage, family holidays, a reno, or funding TFSAs, RRSPs and RESPs.

Janet Gray, Ottawa-based fee-for-service financial planner and money coach


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