When you get an appraisal, the first thing most people probably start thinking about is what all they can do with the extra money.
You can think of thousands of ways to spend your salary hike, but one good idea is to set aside half of your appraisal for the future. In other words, save and invest it.
Why set aside half of your increment for your future?
Saving and investing is done for your immediate needs, needs a few years from now and those that are more than a decade away. An increment means two things for you:
#1. Your present situation and lifestyle can become better than what it is
You want to, let’s say, move closer to your office because your commute is horrendous or you want to get a car now because you just got married. Your present can become better by whatever degree your increment allows it.
#2. You can reach your long term goals faster by investing more
Maybe, you would like to stop working at your day job and pursue your lifelong dream of traveling the world or help the underprivileged. If you’ve already started saving and investing for this dream, your increment can help you get there faster if you increase what you invest every month.
Is there a middle path?
You need to find a balance between taking care of your present and your future. Therefore, 50% of your increment can go towards making your present better and the remaining half can go towards bringing your future dreams closer to reality, faster.
So where should the money meant for the future go?
It may be confusing what should you invest for, and if you are just starting out, then this article can help. Considering that most of us don’t nearly have enough to save for all goals at the same time, the following order can help you decide what should you save for first:
#1. Money for unknown and sudden emergencies.
#2. Money for long term dreams such as retirement.
#3. Money for goals that are coming up in the next 5 years.
If you want to learn more about the four kinds of money that can help you reach your goals, read more about it here.