Something that many people fall victim to is lifestyle creep. Lifestyle creep is when you get a better job (or a pay increase) and then start spending more money. The problem? You’ll soon feel just as broke as you did with your previous salary. Let’s take a closer look at how to stop lifestyle creep.
Make Better Use of an Increase in Income
While you may be tempted to use your increase in income to buy a better car or a bigger house, use that increase in income to pay off debt, build an emergency account, and invest in retirement. You can pay yourself a bit more money for play money, but you can’t give yourself your entire increase.
I like to tag any income increases with a purpose as soon as we start getting it so it doesn't just disappear. For example, we stepped back our HSA savings a bit last year (since we had accumulated enough money to cover our out-of-pocket max), so rather than having that money just get absorbed in the creep, we designated it to beef up our savings for our next car. So, it gets automatically transferred to our money market account each month.
Stick with What You Need
Your family may need a bigger grocery budget, but your family doesn’t need more trips to the mall. Just because you’re making more money doesn’t mean you should start spending your income on frivolous items. Think about what you really need.
Be Intentional About Financial Decisions
Do you want a new TV? There’s no problem with that. The problem is when you rush out and put the purchase on credit. Think about how much money it will cost to buy a new TV and start putting money back from each paycheck. The same goes for any other big purchase.
Consider the Worst
Sit down and consider the following. If you lost your job and had to go back to your previous income, could you cover your bills? If the answer is no, you do not need to take on that expense and you need to build your emergency fund. Be cautious. What’s going good today, may not always last.
Keep Your Budget the Same
Last, but not least, keep your budget as close to the same as possible. Just because you’re making more money doesn’t mean you need to greatly increase your weekly entertainment budget or get a bigger satellite package. Again, there could be things your family really does need. For example, you may need more gas money to get to your new job.
Lifestyle creep almost seems natural. It’s so easy to think that you deserve to spend more money because you’re making more money. Unfortunately, this puts you right back where you were before you received a salary increase. Take the time to be financially smart so that you make the most of your income. Stick with what you need and avoid spending more just because you’re making more.