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Did You Get a Raise? Don’t Let Lifestyle Creep Eat It Up

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Your time has finally come. You spent your years since high school scraping by on ramen noodles and pulling all-nighters so that you could score that great job, right? Now you have paid your dues for a few years and the time has come for you to get a raise or a bonus. This is certainly a cause for celebration!

Rewarding your hard work with some new clothes, a night out on the town or possibly something bigger like a new car is okay, but don’t get too carried away. It is important, to maintain a sharp perspective on your cash flow and your goals when your income begins to increase.

Don’t let lifestyle creep get the better of you

Also known as lifestyle inflation, lifestyle creep, left unchecked, can put a real damper on your retirement savings, emergency fund and savings for other things like a wedding or a house. You can also run the risk of using credit cards to maintain a lifestyle that, put simply, is out of your budget (for now, anyway).

Falling into debt will increase your monthly expenses and make the bonus or raise you received disappear before you have had the chance to use it wisely. Additionally, you will not have savings to help in the event of an emergency or special occasions. This article offers ways you can avoid lifestyle creep and reward yourself responsibly for all that hard work.

Graduate your Lifestyle Gradually

If you are tired of sitting on the old couch that you’ve had since the dorm, it is entirely understandable that you may want to find some new things to spruce up your abode. Once you start to get a paycheck with some wiggle room it can be tempting to go out and replace everything immediately. It is advisable that you focus on purchasing the items that matter most, chipping away little by little, so as not to make an enormous dent in your new income or risk going into debt.

Prioritize the things in your home that you want to change. As your savings continue to grow you can upgrade the old for the new (or “new to you” – there is plenty of great used furniture out there) as long as you stay in line with your budget.

Save First, then Spend

When you get a raise or a bonus ask yourself if your emergency fund needs additional contributions, or increase your retirement savings before you buy anything or spend it on frivolities. Setting up automatic deposits into your savings and retirement accounts is the best way to avoid spending money that you will need in the future.

Reward Yourself...Responsibly

You do not have to take your austerity to the extreme. Treating yourself to some “extras” now and again is more than okay. Doing it with some deliberation can make it manageable without ruining the fun. If there is something that is not a necessity, jot it down on a piece of paper. If in 30 days you still really want it, get it for yourself! Developing habits like this can seriously reduce impulse spending which can talk a toll on your wallet.

Funds for Fun

Being smart with your money does not mean that you can’t have any fun at all. Working hard deserves some respite. Whether it’s a night out with friends, a great concert or weekend getaway, making time and money available for leisure and entertainment is good for your well-being. One way of doing this without hurting your savings is to create a “Fun Fund”.

If you get a raise that adds up to $300 per month, you want to put at least two-thirds of it into savings. The rest of it can go into your “fun fund” and allocated to some extras like clothes, travel and going out to dinner.

Set Goals

Identifying some goals you may have five, ten, fifteen or more years down the road will help you gain perspective on what it will mean for your life and lifestyle if you save now and spend later. Having a down payment for your first home purchase, paying for children’s college, going on your dream vacation, buying a boat—these are big-ticket items to save for. Spending an extra twenty-five or fifty dollars here and there can add up over time and inhibit your ability to make good on these goals.

It is a good mental exercise to write down your big goals and keep them in your wallet. Maybe you can even have some visual reminders like a picture of your dream house or dream destination. When you go to make a purchase you will be confronted by the goals that may be stifled by that purchase. These practices can help you think about whether the purchase is important enough to hinder your dream.

Hopefully over time, your spending will begin to even out. Your income will comfortably cover all living expenses, savings, discretionary items, and travel, and you may find you aren’t counting down the days until your next paycheck. Take the time to check in with yourself. At this point, any future increases in salary may be able to go directly into savings, helping you reach your goals even faster.

Give yourself a pat on the back for living on very little and working very hard. Congratulate yourself on being recognized for your work with a monetary reward. Keep on track for bigger goals that you have set for yourself and don’t be too tempted to act on your impulses when it comes to spending. This advice and a continued strong work ethic will serve you well and, who knows, that dream vacation could come sooner than you initially thought. For help aligning your finances and your goals, a trusted advisor can provide planning solutions that will help you accumulate, save and invest for your future. For more information contact us to set up a meeting or a call.

Tags: lifestyle, financial planning, career advancement, pay raise, millennial, debt, responsible spending, saving, budgeting

Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital.
Information provided in this blog is for educational purposes only and is not intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with own financial advisors, accountants, or attorneys regarding your individual circumstances as needed. No advice may be rendered by Arcadia unless a client service agreement is in place. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

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