Getting a Raise in 2023? 3 Great Ways to Invest It

Spending it all now probably sounds like fun, but it might not be your best move.

January and February are the most popular hiring months, and they're also the most popular time to get raises. Many companies are operating with a new budget for 2023, and so they're better able to accommodate changes to employees' salaries.

If you're lucky enough to receive a raise this year, you probably already have some ideas about how you'd like to spend the extra cash. There's no harm in rewarding yourself with a special purchase or even a vacation. But here are three other ideas to consider as well.

1. Build or increase your emergency fund

An emergency fund is one of the most important financial protections you can have. Everyone experiences unplanned expenses from time to time, whether it's an insurance claim, an emergency room visit, or an appliance failure. Unexpected job loss can also put a lot of strain on a household budget in a short time.

Your emergency fund is cash you keep on hand to help you cover these unexpected costs so you don't have to take on debt or fall behind on your payments. It's up to you to decide how much money you want to keep in your emergency fund, but you should have at least three months of living expenses at a minimum.

Use your raise to build your emergency fund if you don't already have one. And if you do, consider beefing it up a little anyway. Raises can lead to lifestyle creep, where people's expenses rise along with their income. So what may have been an adequate emergency fund for you in the past may not be enough moving forward if you begin spending more than you have before.

2. Save it for retirement

Retirement is the most expensive financial goal most people will ever have, with many estimating they'll need well over $1 million to live comfortably. Saving as much as you can, especially while you're young, makes it much easier to achieve that goal because you'll have more investment earnings to help you cover your costs.

Many struggle to save as much as they'd like for retirement because their everyday expenses take up a large share of their paychecks. A raise presents the perfect opportunity to remedy this situation. Put all or a portion of your raise into your retirement account each month before you get too comfortable spending the extra income.

If you have access to a 401(k) plan that gives you a company match, this is probably the best place for your money. A match will help you grow your retirement savings even faster, and it could be worth thousands of dollars per year, depending on your salary.

3. Pursue further education

Investing in further education could open up better employment options in the future. This is a long-term investment, and you'll have to weigh other factors besides cost when deciding whether it's right for you. You'll need to make sure you have time and, if necessary, the ability to travel to attend the courses.

You could choose to pursue further training in your field if you like what you do. Think about which certifications carry the most weight in your industry and figure out what you need to do to achieve them. When you've finally gotten your credential, you can use this as leverage to negotiate a raise with your current employer or to find a better-paying job elsewhere.

If you're ready for a fresh start, you could always strike out on a new career path altogether. Decide what you'd like to do and then figure out what sort of degree or certification you'd need to land a job in that field. There are plenty of opportunities available online these days for those who don't live near a university.

The three ideas above may not be the most exciting way to spend your raise, but they could help improve your future financial security. Even if you don't want to devote your entire raise to these long-term goals, putting a portion of it toward them could make a significant difference to your finances in the long run.