Take Your Own Advice

Many larger companies and firms implement an annual salary treatment process, so all salaries are adjusted at the same time every year no matter when you were hired. In some companies, this occurs in the fall and others in the spring. My employer adjusts salaries every spring, March to be exact. As I eagerly anticipate seeing what change is in store for me, I started thinking of advice we often give others when asked about financial matters.

  1. Getting a raise is the perfect time to increase your contributions to a 401(k) or other retirement savings. Taking a portion of the raise means you’ll never miss the increased contribution because you were never getting the extra money in the first place.
  2. If you’re already maxing out the tax advantaged contribution to a 401(k), consider switching a higher portion of your contribution to a Roth 401(k) if that’s available from your employer. The increase in salary can be used to offset the higher taxes you pay now but will give you the ability to earn a tax-free return on those contributions forever.
  3. If you’re maxing out your Roth contributions or you do not have that option, consider increasing your contributions to a Health Savings Account (HSA), if you’re eligible. You can contribute to an HSA if you participate in a high deductible medical insurance plan. The magic of an HSA is that contributions are made tax free, earnings are tax free and withdrawals for medical expenses are also tax free. There is no better way to save.
  4. If you’re already maxing out your HSA, consider putting a portion of your salary increase away for current medical expenses and don’t touch your HSA for those costs. Instead, save your HSA for retirement. As long as you use the withdrawals for medical expenses, it’s a better tax deal than a Roth or regular 401(k), and according to every prediction I see, we’ll all need plenty of money to cover medical expenses in our retirement.

Finally, if you’re doing all of the above, then consider taking a well-deserved vacation with your extra income, because you’re already well on your way to a secure future.

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