If you are a military retiree, disabled veteran, or receiving a retirement annuity, you should have seen an increase in your payment benefit payment. The 2023 Cost of Living Adjustment (COLA) was the largest increase since 1981. The increase received by eligible recipients has come at the right time for some who have found it difficult to cope with inflation. Most people ask, now, what do I do with the increase in income? Here are a few tips to help you manage your increase in income.
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Managing Your COLA Adjustment
Evaluate Your Budget
Evaluating your budget to review your monthly income and expenses can help determine if you will have a surplus or deficit. A budget surplus will allow you to have some room to cover your variable expenses or treat yourself to a few incidentals that may occur. A budget deficit can show you where you may need to cut costs so that you don't overextend your income. When evaluating a budget surplus or deficit, you should also look for ways to cut costs, increase your savings, or invest your earnings.
See my feature in: 6 Things To Do Now, If You're Worried About a Recession
Increase Your Grocery Budget
Why would you increase your grocery budget? Some individuals may find that with the increase in income, other benefits like SNAP and other DCFS benefits may decrease. It may not happen immediately, but your current income will be evaluated as you renew any aid you receive. It's important to ensure that you have money set aside, so you and your family can have enough to eat.
Amazon now accepts SNAP EBT and P-EBT in all states to make it easier to shop for groceries.
On the other hand, if you've found that it's been challenging to afford groceries from month to month, then the increase may come right on time so that you can purchase the necessary food for yourself or your family.
Create or Increase an Emergency Fund
Unexpected expenses always seem to occur when you least expect them. A cold front may come through in the winter, or your air conditioner may break at the worst moment if it's a scorching hot summer. Without an emergency fund covering air conditioner repair costs, you may have to get a loan or put the expense on a high-interest credit card.
Have you ever had your dryer stop drying your clothes or your freezer leak ice onto the kitchen floor? If you didn't have money set aside or an emergency fund, you probably had to sign up for a store credit card to replace your broken appliance quickly. With the unprecedented COLA increase, now is the perfect time to establish the emergency fund you may have needed all along.
Save for a Future Goal
After you've evaluated your budget and determined that you have a budget surplus, you may have a goal in mind that you have been planning to save for. Do you dream of purchasing a home, or a car, funding your education, or even going on a much-needed vacation? You may now have the means to do just that. Start with setting a SMART goal. Specific, Measurable, Attainable, Realistic, and Time-Bound goals that are written down are often achieved than naught. Take the time today to write down your short-term or long-term goal.
See my feature in: Control Your Finances By Setting SMART Goals
Invest Some of It
Investing can come in many forms. Whether increasing your retirement contributions with your employer or finding a reputable broker to help you navigate the stock or bond market, investing your current income or your COLA increase can help you plan for your retirement future. It could even help you achieve retirement earlier than you had initially planned.
When looking for a broker, look for one with low transaction fees and no minimum balance requirements. This is especially important if you only plan to trade occasionally and have limited funds to invest. Compare the fees charged by different online brokers to find the best value for your money. Before investing with a broker, check them out on BrokerCheck to ensure they are in good standing http://www.finra.org/brokercheck.
Additional Resources on COLA
What are you planning to do with your increase? Need guidance setting up a plan? Reach out to me to see how we can work together: Talk to Annette.