How to spend a payrise
Brits are likely spend their cash on more expensive alcoholic drinks and higher quality lunch options, according to new research from Direct Line Life Insurance, with the novelty wearing off after the first payslip.
In practice, with inflation currently running at around 2.3%, workers need a chunky pay increase to offset rises in their cost of living. Over half of workers saying that their additional income is absorbed by lifestyle upgrades in as little as three months.
The research also showed that one in five workers wouldn’t cope financially if their income reduced to its previous level.
However, many people have the right idea with their savings. Over two-thirds – 71% – chose to put their additional income into savings with almost a third (30%) doing so immediately.
The extra cash can cause problems with friends and family. More than a third of recipients cited said payrises had prompted jealousy, resentment and requests for loans. Just under 10% of people said they had migrated to a new group of friends having received a payrise.
Jane Morgan, business manager at Direct Line Life Insurance, commented: “After a pay rise it can be tempting to splurge out on something to treat yourself or ‘level up’ your lifestyle but it is often a good time to reflect on your financial position and consider the protection you have in place for your family.”
What to do with a payrise: the three golden rules:
Bulk up your emergency fund – financial advisers recommend holding three-months’ worth of expenses in cash in case of a rainy day
Top up your pension contributions – your company salary contributions should rise commensurately when you get a payrise, but it can be worth adding a little extra to boost your retirement fund
Don’t change your expenses – the novelty of a slightly better lunch quickly wears off. Keep your expenses the same and give yourself financial flexibility instead