5 Downsides to a Bigger Paycheck

Can earning more money ever be a bad thing? If you were to walk into work tomorrow and were told you had received a 25 percent pay increase, you'd be pretty pleased, right? Most of us would be overjoyed, and would immediately start thinking about how the extra money could improve our lives. However, it's definitely worth considering the downsides to a bigger paycheck. Be prepared, or the pay raise could cost you.

1. You start to depend on that big salary

It's a fact that almost all of us fit our lifestyles to our earnings. The more we earn, the more we spend. We upgrade to bigger cars, bigger houses, and commit to larger purchases. We take on more debt, knowing we'll easily pay it off.

But what happens if that big paycheck goes away? Layoffs are a part of life, and they happen in almost every industry. What will happen if that money you have come to rely on suddenly goes away? Do you have savings in place to cover yourself for an emergency? You could find yourself having to downsize your whole life because the money you made is simply not available any more. So even if you do get a raise, your best bet is to continue living like you haven't, and socking the rest away, if you can. (See also: You Got a Raise! Now What?)

2. With more money comes more responsibility

Most companies will expect something in return for the extra money they have just given you. Yes, you have earned it. Yes, you were probably working above and beyond your current salary to get the raise. But that's the rub. Now you have to work above and beyond the new salary to keep management impressed. After all, if you continue to do what you had done before the raise, it will seem like you're coasting. Or worse, that you're ungrateful for the new salary.

Some people find that with the new responsibilities and expectations, plus longer hours, they have actually received a pay cut. For example, 40 hours per week for $2,000 becomes 50 hours per week for $2,300. Yes, it's more money. But the hourly rate has gone from $50 down to $46. These people may actually have been better off without the raise. More money, yes. But at what cost?

3. You're now in the firing line

Make no mistake, when it's time for a company to examine its payroll and look at cost-cutting, the larger salaries come under greater scrutiny. In fact, some companies actually have a threshold, and once you are above it, you are instantly put into consideration for a layoff when the time comes to make cuts.

Of course, if you are simply going from $20,000 a year to $25,000 a year, you most likely don't have to worry. But if you get launched from $50,000 a year to $80,000 a year, or thrown into a six-figure salary, you suddenly represent a more significant figure on the balance sheet. Is there anything you can do about this? Make yourself worth it to the company. Sure, you may earn $120,000 a year; but you saved the company twice that in the last six months. Without you, they'd be missing out.

4. You can lose certain benefits and tax advantages

First, don't let anyone tell you that getting a raise could mean you actually take home less money due to the tax brackets. Only the portion of your salary over a certain amount would be taxed at that higher rate.

However, you can lose out on certain benefits and tax breaks by earning more money. If you qualified for an apartment based on low income, and then get a raise, you may no longer be eligible to live there. Child tax credits are phased out above specific incomes, and every $1,000 over that threshold reduces the credit by $50. Education credits and the Earned Income Credit are also means tested, as well as many other benefits. And your ability to contribute to a tax-preferred Roth IRA retirement account diminishes and is eventually eliminated after you make a certain income.

It's possible that your pay raise could kick you off the programs you rely upon. Of course, you shouldn't let that stop you from celebrating your own success at work, but just be mindful of your budget.

5. Expect jealousy from some people

With a pay raise comes the chance to buy the things you have been dreaming of. You may upgrade your car, your home, your wardrobe, or your vacation destinations. And some people will take notice of that. Expect snarky remarks like, "Must be nice" and "Wish I could afford to eat out like that." This is jealousy, pure and simple.

Anyone who really cares for you will be happy that you have been rewarded for your years of hard work. But if you have a friend or relative who is genuinely upset by your good fortune, perhaps because they can no longer afford to eat where you eat, or take joint vacations, remind them that life is a marathon, and we all run at our own pace. Assure them that their time will definitely come, and point out that you have had to make several sacrifices to get the additional income.

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5 Downsides to a Bigger Paycheck

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