Why You Need a Raise Instead of a Bonus

Why You Need a Raise Instead of a BonusWhy You Need a Raise Instead of a Bonus From an employer perspective, dreingabees are often preferable to raises because theyre generally a self-limiting cost. A company can give out bonuses when it has a year of strong sales, and halt that practice during a year in which sales drop. Raises , by contrast, are generally riskier, because once workers get a boost, companies are essentially locked into paying them mora for as long as they remain employed. Even if a given business decides not to give raises in future years, that business is leise required to keep up with preexisting salaries. Furthermore, because certain benefits, like 401(k) matching dollars, are often tied directly to salary, increasing set compensation can cost companies in other ways.But while bonuses may be the safer bet for employers, that doesnt necessarily hold true from a workers perspective. And though youre better off getting a bonus this year than recei ving no boost in compensation whatsoever, here are a few reasons you, as an employee, should push for a raise over a bonus.Have you ever been asked, whether during a phone screen or in-person job interview, how much youre earning or earned in a given role? Its a question thats posed all the time*, but when you answer it, youre supposed to simply talk salary, because bonuses dont count. Now, imagine youre planning to apply for a new job next year and currently earn $60,000. If your company decides to boost your salary by $3,000, youll get to tell your next company that youve been earning $63,000. But if your company hands out that $3,000 in the form of a bonus instead, that extra money wont help for the purpose of that conversation.One thing you must understand about salary is that the amount you make today will most likely dictate what youre able to command in the future. If you let yourself remain content with a bonus in the absence of a much-deserved raise , you could end up limiting your earning potential for the remainder of your career.*Editors note Depending on where you live, this question may be illegal - learn more here .Were all told were supposed to save a percentage of our salaries, whether for emergencies or the future. But the so-called rules surrounding bonuses are less clear-cut. After all, if that cash is really extra money, shouldnt you get to use it for fun purposes rather than feel compelled to save it?Now heres the thing If your finances arent great, then the answer is a resounding no. No, you shouldnt blow your bonus money on a fancy gadget or vacation if youre behind on savings. And incidentally, most Americans are. An estimated 57 percent of U.S. adults have less than $1,000 in the bank, while 39 percent have no near-term savings to show for at all.Most of us arent doing too great in terms of retirement savings , either. Households between the ages of 44 to 49 have just $81,347 stashed away for retirement, on average, while those between 50 and 55 have an average savings of $124,831. And while those numbers are far from impressive, whats even worse is that nearly half of U.S. households have no retirement savings at all.All of this boils down to the following If you get a salary boost, youre more likely to use that money responsibly than if it were to come in the form of a bonus. And thats the sort of pressure most working Americans need.When you earn money as a salaried employee, you eventually get used to losing a certain portion of your paycheck to taxes. Bonuses, however, are taxed differently . In most cases, youll lose 25 percent of your bonus right off the bat because that payment will be considered supplemental, and therefore subject to a higher tax rate. But that 25 percent doesnt account for Social Security and Medicare taxes, not to mention state taxes. Therefore, by the time you receive that check, you may come to find that your bonus has been whittled down to something in the ballpark of 60 per cent of its original figure. And while you may receive some of that back when you file your tax return, it means you could end up waiting a year or more to get that missing money.Obviously, if given the choice between a bonus or nothing this year, it would be prudent to opt for the former. But if you have a good relationship with your employer, it pays to make the case for giving out raises instead of bonuses if the option for both isnt on the table. Its a move that could end up paying off not just at present, but many, many years down the line.