Congratulations on the raise: Here’s how (not) to spend it

If you're one of the lucky ones who just got a raise, congratulations! Now just make sure you use that extra cash wisely. That doesn't mean you can't treat yourself, though.

"The reality is you need to reward yourself for hard work in achieving that raise," says Dave Drummond, president of Vancouver's DLD Financial Group (dldfinancial.com/). "If somebody came to me asking what do to with money from a raise I'd ask them what their goals are. What do you want to accomplish? What's something you'd like to reward yourself with?' Then at the same time put a portion of that raise toward savings."

And have money withdrawn from your account automatically every month. "Once money is withdrawn, it's like part of people's expenses," Drummond says. "The goal of systematic withdrawal is to have money allocated to savings, then you can spend what's left with peace of mind."

Drummond recommends saving 15 percent of your gross income as a general rule. With a raise, that percentage could be even higher.

Regardless of how modest or major a raise might be, Kevin MacLeod, founder and president of Calgary-based MoneyAdvisor.ca, suggests saving 10 percent, attacking debt with 20 percent, and living off the remaining 70 percent.

"It's important to reward yourself, but you want to make sure your debt's not out of control," MacLeod says.

Here are other options to consider if you're not sure where to direct that extra cash.

- Chip away at your mortgage. Put aside a portion of your extra income every month then at the end of the year make a lump-sum payment on your mortgage. Wouldn't that feel good?

- Give back. If you don't already contribute to charity monthly or yearly, there's no better time to start than after you've been blessed with a pay raise. The options are endless; find a cause that speaks to your soul. Such donations are tax-deductible, too—a bonus.

- Consider insurance. Maybe you've put off life or disability insurance in the past simply because the idea of another monthly payment was too off-putting. A small monthly fee could make a huge difference if life takes an unexpected turn.

- Do your will. This is something a lot of people don't want to think about, and not just because of the legal fees involved. Getting a raise means you can take care of this bill, and check off one of those to-do list tasks that's all too easy to avoid.

- Consider the kids. A boost in income allows for a boost in RESP contributions or the start-up of an account if you haven't yet.

- Grow your RRSP. Either through increased monthly withdrawals or by saving for an annual lump sum, putting more money in this direction will save you money owing on your income taxes and help you plan for the future.

- Get rid of credit-card debt. Right after receiving a raise, put all that extra money toward high-interest debt on a monthly basis until it's gone. Promise to treat yourself to something you've been coveting for a while as a reward—and pay for it with cash.

- Make your dreams come true. Maybe you've got your eye on a lakefront cabin or have always wanted to go on a safari. Put a portion of your pay cheque aside every month in a separate account that you don't touch and start saving.

- Pursue a passion. This is a reward bit, but having a raise can open the door to new skills. Consider taking a class in cooking, photography, art, music—whatever it is that feeds another part of your brain. If you want to keep courses professional, consider those related to your work that will expand your knowledge base and make you more marketable and valuable as a result.