The 3 Smartest Ways You Should be Spending Your Pay Raise

Jeff Cuellar



Getting a decent pay raise in Singapore is tough. Seriously, it’s probably easier to earn a raise by competing against your co-workers Hunger Games-style or even better yet – participating in a “two men enter, one man leaves” fight in a steel-cage like Mad Max Beyond Thunderdome.

Whether you use this proven ego-soothing approach or logic and numbers to win your case by giving your boss your market value (read part 1 and part 2), you deserve that raise either way – simply because you had the initiative to broach the subject with your boss.

Now, where should you spend that extra 3% to 10% monthly salary boost on? Orchard Central? Orchard ION? Orchard Towers? Well… hopefully none of those places (especially the last one).

Instead, consider using your pay raise on any of these 5 financial essentials:


#1 Add That Salary Increase to Your Emergency Fund

So *ahem* how is that emergency fund coming along? If your mental response to that question is either “what the hell is he talking about” or “oh yeah, that…” then you should probably think very seriously about these next few words – EVERYONE needs an emergency fund.

Now let me ask you this – what will you do if you all of a sudden get retrenched (after getting a raise, that’s pretty tragic I know), suffer an injury or catch an illness that leaves you unable to work?

If you have insurance – great! But there will still be some out of pocket expenses to pay as insurance won’t cover everything. Plus you still have your daily living expenses to worry about.

With an emergency fund, you’ll have at least a financial buffer to tide you over in the event you’ll be out of a salary for a few months.


#2 Use That Extra Cash to Pay Your Debts

Debt – every Singaporean has it. If you’re making payments on a home and a car, that’s already quite a bit of debt you’re carrying.

But that’s not the dangerous debt you have to worry about – credit card and personal loan debt is far more dangerous because of the unbelievably high interest rates you have to pay on the balances you carry.

Using the extra income from your pay raise to settle this debt is like bringing more water to put out a fire – the more water you use, the faster you’ll extinguish it.

I can’t stress this enough – take care of your credit card/unsecured debt before it turns into a problem that’ll put a dent in your early retirement plans.

If you’re having trouble finding ways to tackle your debt, read this article on a sure-fire way to destroy your debt once and for all.


#3 Use That Extra Cash for Your Retirement Nest Egg

I know it’s too damn tempting to look at the extra income from your pay raise as “additional” spending money. I won’t even dispute the fact that you probably deserve to spend that extra cash any way you see fit.

But before you start using that extra income on luxury items, expensive dinners and nights out with the guys at Pangaea – think about whether you want to spend your 50s and 60s wishing you had saved up more.

That’s not some bad joke – it’s the truth. The earlier you save up, the easier it will be to build up your nest egg for retirement. The later you start saving up in life, the harder it becomes to reach your retirement goals – even if you’re making a much higher income 10 years down the road.

That’s because of a little thing called “compounding interest.”

For example, if you put $5,000 a year into a mutual fund that earns 8% interest at age 25 – you’ll have $1,585,650 dollars by the time you’re 65.

However, if you wait until you’ve made a higher income at age 35 and put 10,000 a month into a mutual account earning 8% interest – you’ll only have $1,359,603 dollars. That’s still a lot of money, but you can’t tell me you wouldn’t like to be another $225,000 richer.

Just think about that before you go to Orchard Road to spend your hard-earned cash instead of building up your nest egg.


What are some other smart ways to use your pay raise (other than nights out at MBS)? Share your thoughts with us on Facebook! For even more useful information on everything personal finance, visit MoneySmart today!


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Jeff Cuellar

I'm known by many titles: copywriter, published author, literary connoisseur, ex- U.S. Army intelligence analyst, and Champion of Capua.