What To Do When Your Income Increases

How Much Of A Raise You Actually Keep

This example uses the 2026 standard deduction of $16,100 for a single filer. State income tax, if your state has one, comes out of what's left.

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The 2026 Federal Tax Brackets

These apply to taxable income, after the standard deduction or itemized deductions. Moving into a higher bracket only affects the dollars above the line.

Rethink Your Financial Goals

As my income grew over the years, I had to rethink my goals several times. I eventually decided that while my income was up, I'd put more toward paying off my mortgage.

The mortgage was our only debt, and I knew that once it was gone, my husband or I losing a job wouldn't sink us. It wouldn't be fun, but it wouldn't wreck us. We still saved for retirement, our kids' college and emergencies, but most of the extra went to the house.

Your goal might be different. The question to ask is which change would protect you most if something went wrong, and which would set you up best if nothing does.

Where To Put The Extra Money, In Order

This order works for most people because each step either removes a risk or captures a benefit that's hard to get later.

1. Fill your emergency fund to three to six months of essential costs in an insured savings account.
2. Capture your full employer match in your 401(k) or similar plan. A match is an instant return.
3. Pay off high-interest debt, starting with credit cards.
4. Fund an HSA if you have a qualifying health plan: $4,400 self-only or $8,750 family in 2026.
5. Fund an IRA, up to $7,500 in 2026, or $8,600 at 50 or older.
6. Raise your 401(k) contribution toward the $24,500 limit, or $32,500 at 50 or older.
7. Then move to other goals: a house down payment, college savings, extra mortgage payments or a taxable brokerage account.

A raise can push you past the Roth IRA income limits, which phase out between $153,000 and $168,000 of modified AGI for single filers in 2026, and between $242,000 and $252,000 for joint filers. Above them, a backdoor Roth IRA keeps the door open.

Allocate Extra Money Before You See It

Once you've picked your goals, decide exactly how much of the raise goes to each one. It doesn't have to be all of it.

If you keep a written budget, rewrite it with the new income included. If you're like me and prefer to automate, change your automatic transfers and your 401(k) percentage the same week the raise starts. Money you never see in your checking account is money you won't miss. For more ideas, see our ways to save more of your income, and our list of the best budgeting tools can handle the tracking.

Is It Okay To Spend More Money?

Absolutely. There's a time and place for frugality, but if you're meeting your goals and obligations, there's no reason not to spend some money on yourself.

In personal finance it's easy to feel guilty about spending on wants rather than needs. Part of balance is spending on things that bring you joy. Don't spend every extra dollar, but setting a share of each raise aside to spend guilt-free is a healthy habit.

Adding Crypto When Your Income Rises

If you invest in crypto, a raise is a good time to set a fixed rule instead of buying on impulse. Pick a share of the raise, for example 5% of the extra take-home, and set a recurring buy on an exchange such as Coinbase or Kraken, both available in the US, UK, EU, Canada and Australia (Kraken doesn't serve New York or Maine residents).

Recurring buys spread your purchases across high and low prices. Keep the amount small enough that a 50% drop wouldn't change your other plans. Our crypto portfolio allocation page covers sizing, and our best crypto exchanges ranking compares costs.

In the US, a higher income can raise the tax on crypto you sell. Coins held a year or less are taxed as ordinary income at your bracket, and long-term gains rates rise with income too. See our crypto tax rates page.

If You Live Outside The US

The same order works elsewhere, using your country's accounts.

What To Watch Out For

• Lifestyle creep. A new car payment or a bigger lease can lock in costs that outlast the raise.
• Benefit cliffs. Some income-based benefits, including health insurance subsidies and child care help, phase out quickly as income rises.
• Under-withholding. A bonus or side income can leave you owing at tax time. Check your withholding after any big change.
• Treating a bonus like a raise. A bonus isn't a permanent increase, so don't commit it to monthly costs.

Update

From the Cult of Money editors, November 2026: Alexa wrote this post in 2016. We've kept her story about putting extra income toward the mortgage and her advice on guilt-free spending, and added 2026 tax brackets and account limits, a worked example, a section on investing in crypto with a raise, and notes for readers in the UK, Canada and Australia.

FAQ

What Should I Do First When I Get A Raise?

Increase your automatic savings and retirement contributions before the first bigger paycheck arrives. Then decide how much of what's left goes to debt, goals and spending.

Will A Raise Put Me In A Higher Tax Bracket And Lower My Pay?

No. Only the income above each bracket threshold is taxed at the higher rate, so a raise always increases take-home pay from wages. The exception is when it causes you to lose an income-based benefit.

How Much Of A Raise Should I Save?

A common rule is at least half. If you have high-interest debt or no emergency fund, saving or paying down debt with more of it speeds up your progress.

Should I Pay Off My Mortgage Or Invest My Raise?

Paying off a mortgage gives a guaranteed return equal to your rate and lowers your monthly costs, while investing has higher expected returns with more risk. Many people split the difference after capturing their employer match.

Is It Smart To Put A Raise Into Crypto?

A small, fixed share through recurring buys can fit a long-term plan, but crypto prices can fall more than 50% in a year. Fund your emergency savings and retirement accounts first.