In a struggling economy, firms are extra careful about promotions. Many people find themselves acting up for maternity or other cover. If they’re lucky, they get a temporary pay hike too. While extra money is, of course, welcome, it can be fool’s gold – causing nearly as much pain as good if handled wrong.
I was prompted to write this having been asked for tips by a publication for police officers, where many are currently being given temporary pay rises knowing they’ll be reduced again once they’re returned to their substantive rank.
Why it’s fool’s gold
We readjust our spending patterns at speed when they’re on the way up – but find it far more difficult to reduce spending on the way down. The see-saw isn’t balanced.
Once given a pay rise people soon cut their cloth accordingly, taking on more commitments or just getting used to a lifestyle with more cash. After that, retrenching back to a lower salary is tough.
Enjoy the rise but protect yourself
So if you do get a temporary rise, think carefully about what you should do with the cash. Try to perceive it as an added bonus, not core income. If you’re in debt the primary use should be to throw it at clearing that (see the Pay Debts With Savings guide), which will have a long term knock-on gain, even once the rise is a distant memory.
For those who are debt-free (hurrah!) one option to avoid osmosing the money into your day-to-day habitual expenditure is to put it towards a specific purpose (try piggybanking). Try building a "savings pot", getting a "new sofa", or a "weekly dinner out", so you’re not adjusting your overall habits, but still see the gain from the extra cash.