Put your salary bump towards savings and investment

If you’ve just received a salary increase, you’re probably already spending the extra money in your head. A fancy new car, maybe even a motorbike? A lavish trip overseas? The latest folding smartphone on a contract that costs a few thousand a month?

Everybody loves to splash out when they start making more money, and we don’t want to be killjoys. Your increase is proof that you’re a loyal employee and a hard worker, so of course you should be able to spend at least a portion of it on personal treats to celebrate.

But if you have your own long-term best interests at heart, you’ll keep those treats small and affordable and devote most of your extra salary to savings and investment that will secure you a more comfortable future. Even if you’re already saving towards your retirement, there are added psychological benefits that come with having extra money saved in the bank.

Saving is better for mental health than instant gratification

In his piece, 7 Ways Psychologists Say Saving Boosts Your Mental Health, time.com and inc.com author Kentin Waits writes that saving can:

  • improve discipline,
  • bring peace of mind,
  • supply confidence,
  • allow assertiveness,
  • give optimism,
  • enable compassion and
  • offer a sense of freedom.

‘Successful saving builds confidence in at least two important ways. First, it reinforces the fact that you can really achieve something when you set your mind to it. And second, saving provides the capital to get things done when necessary,’ Waits adds. ‘If your 30-year-old geyser gives you the cold shoulder in the middle of a winter storm, you don’t have to kindle a campfire in the bathtub to stay warm. Isn't having the resources to act the ultimate confidence-builder?’ Likewise, if you have an old car that packs up, knowing you have the money saved for a deposit on a new one means you have less to worry about.

Putting your extra money away can also help you weather the storms when interest rates rise. In fact, some might argue that the smartest thing to do with any added income is to put all of it directly towards paying off any debt faster, which will reduce the total amount of interest you pay.

Don’t turn luxuries into necessities

As you earn more money, it’s tempting to upgrade your lifestyle with nice things like high-tech gadgets, designer clothing and expensive nights out. Again, it doesn’t hurt to indulge in a little luxury once in a while to celebrate career milestones and life goals achieved, but if you resist the lure of lifestyle inflation and continue living the way you’re already living, you’ll have more money to invest in real wealth.

A salary increase removes the excuse that you ‘never have enough money left’ to save anything

Consider setting up a debit order with your bank to pay the portion of your increase you’ve decided to invest into a notice or fixed-deposit account every month. Your money will grow, and you can then diversify into long-term investments to give you the financial security that outlasts any fashionable gadget or clothing trend.

Have more cash available in an emergency

You can use a salary increase to boost your emergency fund – and if you don’t have one yet, you should prioritise starting one with this increase. It’s easy enough on the Money app, where you can set up an emergency savings MyPocket linked to your Nedbank transactional account. This is an instantly accessible savings solution that you can start with as little as R1, and your money earns interest according to the amount in each pocket.

You can open as many as 10 MyPockets dedicated to different savings goals while your money remains instantly available, until you have enough saved in them to deposit in investments that offer better interest rates. Consult a relationship banker to see what solutions will balance the investment term, the interest rate and the accessibility of your money in a portfolio that gives you the returns you need.

Your increase may have bumped you into the income category that qualifies you for Private Clients banking services. As a Private Client, you’ll have a relationship banker to give you expert advice about making your raise work for you, including helping you invest offshore in foreign currencies.

Imagine explaining to your future self

We know it’s not easy to save or invest money. But like many unpleasant but necessary tasks in life, the hardest part is motivating yourself just to get started. A salary increase removes the excuse that you ‘never have enough money left’ to save anything – if you were managing all your expenses before the increase, you obviously have more money than you need now.

Another great motivator is to imagine your future self. How would you explain to them that your present self thought a shiny new car or entertainment centre upgrade was more important than your future self’s stress-free retirement?

Personal wealth expert Mike Coady says: ‘Those individuals who are less concerned with the future are much less likely to save, and the same is true of people who have trouble identifying with their ‘future self’. It’s been found that people who fail to see their ‘future self’ as an extension of their ‘present self' are far less likely to put money aside for the future.’

A salary increase represents both an opportunity and a choice. You’ll be in a much stronger financial position in the future if you choose to save and invest money in proven financial solutions.