You’re Getting a Raise in February: Here Are 5 Ways to Spend It

Happy woman
Photo by svershinsky / Shutterstock.com

Beginning in February, 90 percent of households will see more take-home pay, according to the U.S. Treasury.

The fatter paychecks are a result of recent tax overhaul legislation that cut taxes on average for all income groups, according to a recent analysis by the Urban Institute and Brookings Institution’s Tax Policy Center.

In fact, the analysis found that just 5 percent of taxpayers will pay higher taxes in 2018 than they did under the old tax code.

You can expect this newfound cash to begin making its way into your paycheck in February as smaller amounts are taken for tax withholding. According to the Treasury Department:

Employers are encouraged to implement the new withholding tables expeditiously but should do so no later than February 15, 2018. Workers will see changes in their February paychecks once employers adopt the new guidance.

It might be tempting to celebrate that found money with a splurge on a new toy, or a trip to the spa. But you would be much better off directing that cash toward other things.

Here are five ways you can turn your February “raise” into something that will pay bigger dividends.

1. Pay down debt

Debt is the No. 1 killer of wealth. Every cent you apply to paying down your financial obligations gets you one step closer to financial freedom. As Money Talks News founder Stacy Johnson has said:

Ever hopped in the car and started mindlessly driving around, assuming that sooner or later you’d arrive at an awesome destination? Probably not. If you want to be somewhere awesome, step one is deciding exactly what destination fits the bill. Step two is to find the shortest path to get there.

Stacy has some great ideas for mapping out your journey to a debt-free life. Read about them in “Ask Stacy: What’s the Single Best Way to Pay Down Debt?

2. Boost your retirement

The power of compounding is truly miraculous. Let’s say that thanks to tax reform, you get an extra $1,000 in your household paychecks each year. For the next eight years — the amount of time you have before the new tax rates are slated to expire — you invest each year’s extra $1,000 in a tax-deferred retirement account by purchasing a stock fund returning 10 percent annually.

To make the picture even rosier, let’s say you leave the money untouched for three decades. In some years, the stock market declines, and you lose money. In other years, you see big gains. But overall, the market continues to return close to its historical annual average of about 10 percent.

At the end of 30 years, you’ll have earned nearly $100,000 — all on an $8,000 investment.

For more on the power of compounding, check out “How to Save $500,000 in 15 Years.”

3. Create an emergency fund

Investing for retirement is great. But if you barely have two nickels in your pocket, you need to be thinking about today, not 30 years from now.

An emergency fund is a pot of money you can turn to when the car needs to be repaired, or the furnace flames out. If you lack such savings, start building an emergency fund with the extra cash in your paycheck.

Will it be difficult to hold on to that new cash before spending it? Of course. If you are living paycheck-to-paycheck right now, the idea of saving anything might seem impossible.

But think about it this way: Before tax reform, you didn’t have that money at all. And somehow, you managed to get by.

So, save the extra cash for a rainy day, and give yourself a little peace of mind. For more advice on creating an emergency fund, check out “Struggling to Build an Emergency Fund? Try This Instead.”

4. Pay down the mortgage

For most Americans, the mortgage payment is our biggest monthly expense. Using the extra cash in your paycheck to pay down the mortgage faster can have a much bigger financial impact than you might imagine.

As we point out in “7 Painless Ways to Pay Off Your Mortgage Years Earlier,” you can reap huge savings simply by taking your monthly mortgage payment, dividing it by 12 and adding that amount to each month’s mortgage payment:

For instance, with the $1,013 monthly payments in the example above, one-twelfth is $84. MortgageCalculator.org’s extra mortgage payments calculator shows that adding $84 to the normal payment saves $27,571 in interest on a 30-year mortgage and pays it off four years and three months sooner.

For more on this topic, check out:

5. Invest in yourself

The tax overhaul kept two important education tax breaks in place:

  • The American Opportunity Tax Credit (AOTC). Worth up to $2,500 per year, it can help pay for expenses from the first four years of a student’s higher education.
  • The Lifetime Learning Credit (LLC). Worth up to $2,000 per year, “it can help pay for undergraduate, graduate and professional degree courses — including courses to acquire or improve job skills,” the IRS says.

So, why not take some classes to boost your career? Or take a class simply for the joy of learning. Using the extra funds from your new, lower tax rate and applying it in a way that gets you an additional tax break is a great way to score some sweet revenge on the tax man.

How will you use your bigger paycheck? Share with us in comments or on our Facebook page.

How to find cheaper car insurance in minutes

Getting a better deal on car insurance doesn't have to be hard. You can have The Zebra, an insurance comparison site compare quotes in just a few minutes and find you the best rates. Consumers save an average of $368 per year, according to the site, so if you're ready to secure your new rate, get started now.

Read Next
How to Invest in Real Estate for as Little as $500
How to Invest in Real Estate for as Little as $500

If stock market volatility has you looking for other investment options, here’s a way to diversify — even if you don’t have tons of money.

28 Things You Should Never Pay For — and How to Get Them for Free
28 Things You Should Never Pay For — and How to Get Them for Free

From entertainment to education, if you know the tricks, you can save big.

5 Ways to Put an End to Junk Mail
5 Ways to Put an End to Junk Mail

Here’s how to keep unwanted mail from clogging your mailbox and trash can.

30 Purchases That Will Start Saving You Money Immediately
30 Purchases That Will Start Saving You Money Immediately

Sometimes, you’ve got to spend to save. These canny deals are a good bet for savings.

25 Things You Should Never Buy — and What to Buy Instead
25 Things You Should Never Buy — and What to Buy Instead

If you really want to save money, become a more intentional shopper.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
Will I Get My Ex-Husband’s Social Security When He Dies?
Will I Get My Ex-Husband’s Social Security When He Dies?

Two factors determine how much money is coming to you.

7 Ways to Boost Your Credit Score Fast
7 Ways to Boost Your Credit Score Fast

Your financial security might soon depend upon the strength of your credit score.

21 Things You Should Always Buy at a Dollar Store
21 Things You Should Always Buy at a Dollar Store

Dollar stores have great bargains on these familiar purchases. Yes, even pregnancy tests.

13 Brilliant Bulk-Buy Items on Amazon
13 Brilliant Bulk-Buy Items on Amazon

Every household should have these products on hand. Buying them in bulk on Amazon saves you cash.

6 Reasons I Will Never Trust Suze Orman
6 Reasons I Will Never Trust Suze Orman

Beware: The self-proclaimed personal finance expert has a track record that suggests more sizzle than steak.

This Type of Social Security Benefit Is Often Overlooked
This Type of Social Security Benefit Is Often Overlooked

The Social Security Administration is not helping certain people get money to which they are entitled, a report says.

Getting These 2 Shots Could Reduce Your Risk of Dementia
Getting These 2 Shots Could Reduce Your Risk of Dementia

These vaccines may lower the risk of Alzheimer’s disease by up to 40%.

8 Deep Discounts Available on Amazon This Friday
8 Deep Discounts Available on Amazon This Friday

These items are all steeply discounted — but the deals won’t last long.

9 Everyday Problems You Can Solve With Vaseline
9 Everyday Problems You Can Solve With Vaseline

Forget expensive specialty products. Good ol’ petroleum jelly can address many common annoyances.

16 Amazon Purchases That We Are Loving Right Now
16 Amazon Purchases That We Are Loving Right Now

These practical products make everyday life a little easier.

19 Purchases That Buyers Almost Always Regret
19 Purchases That Buyers Almost Always Regret

Think twice before buying these things.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

These jobs pay more than the typical job in the U.S. — and no bachelor’s degree is required.

7 Tips for Building an Emergency Stockpile
7 Tips for Building an Emergency Stockpile

A pandemic or natural disaster could leave you reliant on your existing food supply. Is your pantry prepared?

Homeowners Say These 2 Kitchen Appliance Brands Are Best
Homeowners Say These 2 Kitchen Appliance Brands Are Best

One brand takes five of the top honors, while another ranks highest in three categories.

Is a Second Stimulus Check Still Coming?
Is a Second Stimulus Check Still Coming?

The status of another round of direct payments to taxpayers is a mix of good and bad news.

41 Things You Should Never Buy
41 Things You Should Never Buy

Some purchases are just plain dumb. Give yourself — and your budget — a break. Don’t spend money on this stuff.

9 Indestructible Products That Are Worth the Price
9 Indestructible Products That Are Worth the Price

If you’re willing to pay a little more for these products, you may never have to shop for another again.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

8 Ways to Slash Your Internet Bill
8 Ways to Slash Your Internet Bill

No matter what price you are paying for internet service, taking these simple steps can lower it.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.