4 Reasons You Should Negotiate a Raise (But Never Spend the Money)

When asking for a raise or promotion, many people ask the wrong way and ask for the wrong reasons.

The wrong way to ask is to walk into your boss’ office and beg for a raise, demand a raise, or give an ultimatum. The wrong reasons to justify an increase are excuses like you need the money for rent, you heard that a friend of yours makes more than you, or you want to buy that new Jaguar convertible you saw on TV.

In fact, if you’re like many Americans, even if you get that raise, you’ve already spent the additional money before it even clears direct deposit.  According to a CNN/Money survey, 76% of Americans are living paycheck to paycheck, 50% have less than a three-month cushion, and 27% had no savings at all.

Here are 4 benefits of negotiating a huge raise – and then not spending it.

Lets say you hit the one year mark in your new job, you’ve worked incredibly hard to prove yourself, and then during your annual review you do your homework, present your case, and land a nice raise.

Like a sophomore that has survived freshman year and now knows their way around campus and how hard they have to work to succeed, an employee that is confident that they are fairly paid in the marketplace and happy with their role can put more focus into their job.

Ironically, when you’re not constantly worried about the paycheck of the guy sitting next to you or if the grass is greener at another company, you’ll be more focused on the goals in front of you, which should lead to a better raise at your next review.

Most financial planners advise having an emergency fund of 6 to 12 months of living expenses you can access in a worst-case scenario. If you’re able to use the money negotiated from a raise to build up this nest egg, it can have several benefits.

If there is an unexpected layoff, restructuring, or an event that eliminates your job, it won’t be the end of the world if you have that buffer. Just knowing it’s there might lessen some of the stress in your life.

Additionally, the problem with living paycheck to paycheck is that you get in the situation where you NEED your job. And when that happens, you lose a key negotiation point: leverage. Your boss could be a jerk or you may dread going to the office every morning, but if you’re 100% reliant on that paycheck, there’s not much you can do. You can’t leave.

There are many benefits to your 40-hour per week full-time job: a steady paycheck; health benefits; vacation; 401(k) retirement plan; and so on. If things are going well, the promotions are rolling in, and the raises are there right along with it, it’s easy to think that it will go on forever.

But you don’t have to look back more than a few years to see how things can quickly change, with Forbes highlighting massive layoffs at Citigroup (50,000 employees in 2008), GM (47,000 in 2009), USPS (30,000 in 2010) and Bank of America / Merrill Lynch (30,000 in 2011).

Funneling your extra income into a side business makes sense on many levels:

• It could be a fun project that gives you happiness and brings in some income
• It builds new skills that you can use at your current job
• It lays the foundation for a secondary career should a layoff occur
• It’s a safe way to transition from one industry to another at a later date without quitting your full-time job now
  

Imagine Joe starts a new job right out of college making $50,000 a year as a programmer at a major insurance company near his hometown. He works hard over the next two years and during performance reviews does a good job negotiating and is able to increase his salary to $65,000.

During those two years, he lives below his means, keeps expenses low, and still conducts his life as if he’s being paid $50,000. While the job was a great start right out of school, lately there’s been some management changes, some of his favorite co-workers have left, and he’s not really excited about the work he is doing.

Suddenly, a major opportunity comes up. Two friends from school call to say they are working for a rising new startup doing mobile game development in Seattle. The job would involve moving to a great new city, working in an exciting startup atmosphere, having major input on the direction of the company, programming for games and not insurance deductibles, and generous stock options.

The catch? The bootstrapping startup can only afford to pay a base salary of $48,000. If Joe had matched his spending to his increased salary of $65,000 and was living month to month, he couldn’t afford to take a $17,000 pay cut. But since he was still living as if he were earning $50k, and had put some money aside, he’s able to seize this opportunity if he wishes.

So work hard, negotiate hard, and get that raise you deserve. But before you splurge and spend that increase, give some thought to other options that might help your career in the long term. Luckily Salary.com can help.

The first thing you should do is research, so you're able to come to the table armed with the knowledge of what your job is worth. Use our free Salary Wizard below to find out what's a fair salary for your position. You can enter your location, education level, years of experience and more to find out an appropriate salary range before you negotiate.

Good luck.