Top 5 things to do with a pay rise

Introduction

If you’re one of the thousands of teachers who received a 3.5% pay rise this term, you’ve probably already begun thinking about how to spend the extra money.

While splashing out can be tempting, using it to strengthen your financial planning now could make a real difference to your finances for the future.

How might a pay rise help to support your financial planning?

Whether the pay uplift has made a big difference to your salary or not, even a small increase could be used to give your financial planning a boost.

Small, regular deposits into a savings account for example can really build over time, especially if you have an interest rate that’s ahead of inflation. But there are other ways to help better your finances for the future.

1. Pay off outstanding debt

Before deciding to spend or save your money, look at your existing commitments. Even a small amount of borrowing could quickly mount up with interest.

Think about credit cards, store cards and small bank loans. If you can’t pay them all off at the same time, set yourself a plan to pay a small amount over a few months.

Being able to remove recurring bills for small debt can go a long way to helping you get your finances in order. You can then start to save that money for something you really want – not just paying off the interest on outstanding borrowing.

2. Build an emergency fund

You’ve paid off your credit cards and finally freed up some extra money. What now? As the saying goes, prevention is the best cure. So, how about using that money to build your own emergency fund for the next time your washing machine breaks or your car needs new tyres?

It’s recommended that most people should aim to save between three and six months of salary in their emergency fund. That way they have a realistic buffer against unexpected expenses.

You can start building a fund by committing to save a small amount each month. That way you’re able to build a sustainable money habit alongside your other bills.

Building an emergency fund helps to remove the need to get into debt, by ensuring you have money put aside for unexpected costs.

3. Overpay your mortgage

A mortgage is probably one of the biggest debts that most homeowners will have. But while payments may seem never ending, paying even a small overpayment each month can have a big impact over the long term.

That’s because any overpayments go directly towards reducing the balance you owe. As a result, there's less debt for your lender to charge interest on.

Over time, this could mean paying less interest overall and reaching the point where your mortgage is fully repaid sooner.

4. Top up your pension

Adding more to your pension is one of the most effective ways to save, in more ways than one.

While your first thought might have been what the pay rise means for your monthly take home pay, you may not realise that it also means a welcome boost for your Teachers’ Pension Scheme (TPS).

That’s because pension benefits are linked to pensionable earnings for active members of the TPS. So, the salary increase won’t just affect today’s income – it can also increase the pension you’re building throughout your career.

You could also decide to use your extra pay to top up your savings for retirement by opening a private pension or by making Additional Voluntary Contributions (AVCs).

If you’d like to explore these options further, it may be worth speaking to a Specialist Financial Adviser from Wesleyan Financial Services. They can help you to decide which option is best for you. Charges may apply.

5. Top up your savings

Finally, you may choose to simply top up your savings. Whether that's to further build your emergency fund, save for a specific goal or set money aside for something you'd like in the future, finding an approach that works for you is key.

If you want to be able to access your money quickly, you might consider options such as an easy access savings account or a cash ISA. These can offer flexibility while helping you to grow your money.

If you're looking to build your savings over the longer term, investing may offer opportunities for growth beyond those typically available from cash savings. As with any investment, values can change over time in line with market conditions.

Whatever your goal, it's important to choose a savings or investment option that matches when you'll need the money and how comfortable you are with risk. Regularly reviewing your progress can help ensure you're still on track to achieve what you want.

How can a Specialist Financial Adviser help?

Managing your finances isn't always about making dramatic changes. Often, it's about making informed decisions and ensuring your money is working towards the things that matter most to you.

A Specialist Financial Adviser can help you understand how a pay rise could fit into your wider financial plans, whether that's paying off debt, building savings, planning for retirement or investing for the future.

An adviser from Wesleyan Financial Services will take the time to understand your circumstances, priorities and long-term goals before making personalised recommendations. They can also help you review your plans as your career and financial needs evolve.

From buying your first home to preparing for retirement, having professional financial advice can give you confidence that you're making informed decisions at every stage of your journey. Charges may apply.