The Money Muse

When it comes to your personal finances, it’s important to consider more than just your salary increase. While getting a raise is certainly a positive outcome, it’s essential to understand whether that raise truly enhances your financial situation. With inflation rates at 4% and rising costs across essential goods and services, a raise that barely keeps pace with the cost of living is essentially a wash, leaving you no better off than before.

The Importance of Staying Ahead of Inflation

Inflation is one of the most significant financial factors you need to account for when assessing a raise. According to the U.S. Bureau of Labor Statistics, the inflation rate in 2024 was around 3.5%, meaning that the costs of everyday goods – food, gas, and housing – are increasing at this rate. If your raise doesn’t exceed the inflation rate, you’re effectively losing purchasing power.

For example, if you receive a raise of 3% while inflation is at 4%, you’re in a worse financial position than you were before because the prices of goods and services are rising faster than your income. Essentially, you’re not moving forward financially – you’re standing still.

What Are “Cost of Living” Adjustments and Raises?

A common type of raise is a cost of living adjustment (COLA), which is intended to keep your salary in line with inflation. While this sounds good in theory, it’s often insufficient when the inflation rate exceeds the adjustment. According to the 2024 Salary Budget Survey by WorldatWork, the average salary increase for U.S. workers in 2024 was projected to be around 4.1%. However, this is just about in line with the expected inflation rate, so in real terms, the increase isn’t much of an improvement.

How Much Raise Do You Really Need?

To improve your financial standing, your raise should ideally outpace inflation and the cost of living increases. As it stands, even if you’re receiving a 4-5% raise, you’re just staying even. To build wealth, you need a salary increase that offers more than just parity with inflation.

What you should aim for is a raise that exceeds inflation. A raise of at least 5-6% would help you not only keep pace with rising costs but also give you the ability to save more and work toward your long-term financial goals.

The Reality of Income Growth

Many people have a natural tendency to accept their annual raises without much thought. But the truth is, if your raise is simply matching inflation, you’re not making any substantial progress toward your goals. To achieve long-term wealth-building and financial freedom, you need to be proactive in your negotiations and make sure your raise reflects both inflation and your increased value to your employer.

How to Advocate for a Bigger Raise

1. Know Your Worth: Research the market value for your position. Websites like Glassdoor, Payscale, and LinkedIn can help you see what others in your role are earning.
2. Track Your Accomplishments: Keep a record of your achievements over the past year, whether it’s leading successful projects, bringing in new business, or saving the company money. Demonstrating your contributions is key to justifying a larger raise.
3. Make Your Case: When negotiating, present data showing how your work has contributed to the company’s success and how your salary should reflect your increased responsibilities and the market rates for your role.
4. Consider Non-Monetary Benefits: If the company can’t offer a higher raise, consider negotiating for additional benefits like more vacation days, flexible work arrangements, or professional development opportunities.

Don’t Settle for Less

When you’re evaluating your raise, it’s important to consider whether it’s enough to cover inflation and rising costs of living. If it’s just a COLA adjustment that keeps you even, you might want to reconsider your financial strategy. Advocating for a raise that exceeds inflation, backed by solid data and performance, can help you improve your financial situation and build wealth over time.

Instead of simply accepting a standard raise, aim for an increase that will actually put you ahead and set you up for greater financial success. After all, your financial independence and long-term goals deserve more than just matching inflation – they deserve to be prioritized and fully supported by your salary.