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But if you follow this advice, your raise becomes the gift that keeps on giving.

3 minute read

If money can’t buy happiness, what’s the point in handing out raises?

That’s the reasoning of The Workforce Institute at Kronos, a “global leader in  workforce management solutions.” Last week, the company released a  survey of 850 employees, and this is their big conclusion: “Two simple words — ‘Thank you’ — could be the difference between a happy employee and one with a foot already out the door.”

Here’s what else Kronos found…

  • 24 percent of those who have ever received a raise said that it didn’t improve their motivation or make them feel appreciated;
  • 40 percent said it improved their motivation or feelings of appreciation for six months or less;
  • 30 percent said the raise improved these feelings for a month or less.

That leaves just 6 percent of workers who feel a long-lasting boost in happiness after getting a raise. Meanwhile, nearly half of employees say they feel no appreciation or only “somewhat appreciated.” About 26 percent said that’s led them to think about searching for a job in the last week.

But if a raise won’t make you happier at work, you might have bigger problems than money. Or maybe you’re just thinking about it the wrong way. Here’s what to do with a raise to make yourself happier in the long run…

Save it

This year, raises are expected to increase to their highest rate since 2008. If you’re one of the employees forecast to get the average 3 percent raise, you might be tempted to spend that extra cash on a new car or a vacation. But that’s a good way to forget you even had some extra money in the first place. You want to keep spending at the level you were on before the raise, then save and — eventually — invest the difference.

The easiest way to do it is to ask your human resources department to help you set up a second direct deposit for the raise amount, right into a savings account. That way you won’t miss or accidentally spend it.

Invest it

It used to be that a savings account was a decent, safe way to earn interest on your money. It’s still safe, but no longer decent. While some banks used to get 4-6 percent returns, now it’s rare to find a bank offering an interest rate of more than 1 percent.

You might as well put it somewhere useful, even if you don’t want to brave the stock market. Here are some other options…

If you want health care savings: Sign up for a health savings account, which isn’t taxed, earns you a tax deduction, and can be used in case of a health care emergency.

Any money you don’t use in the account earns interest every year. And once you turn 65, it just becomes retirement money. You can withdraw the money without penalty even for non-medical expenses.

If you want college savings: It’s a pretty safe bet that putting your kids through college will cost you. (Some parents are even dipping into their retirement funds to pay for it, which is a big no-no.) To help offset these costs, use your raise to start a 529 plan, which is a federal (and often state) tax-exempt college savings account.

Some states even offer matching money, and depending on the plan your money can grow in stock mutual funds, bond mutual funds, or money market funds.

Once the time comes for your kid to head off to college, you can apply money in the fund to most college expenses, including tuition, room and board, textbooks, and (if required) laptops.

If you want retirement savings: More than a third of Americans are not currently saving for retirement. That’s bad news, and it’s not going to be easy to catch up later.

Recent research shows retirement saving is often “disrupted” because of things beyond our control — a poor economy, losing your job, or having to support a sick child or parent. It’s cost Americans more than $2.5 trillion in potential savings the past five years. So it’s important to save as early and often as possible.

A Roth IRA is a great way to grow retirement savings, and the money isn’t taxed when you take it out, unlike a traditional IRA. You can contribute up to $5,500 per year if you’re under 50 (it goes up to $6,500 after that) all the way until retirement.

Watch it grow

It may not be as sexy as spending your raise on a trip to Cancun, but you can rest easy knowing that your health care, children’s college, and your own retirement are on safer financial footing.

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About the Author

Jess Miller

Jess Miller

Miller is the former assistant editor of

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