Is Your Lifestyle Creeping Up on You?

Dear Carrie,

I’m making more money after recently switching jobs but still never seem to have any extra. How can I get ahead?

—A Reader

Dear Reader,

First, congratulations on your new job. A lot of people are contemplating making a move these days, and you're one of the lucky ones to have done it successfully. And there's no reason not to enjoy that success by loosening up the purse strings a bit. It's only natural to want to improve your lifestyle as you make more money. But along with my congratulations, I'll offer a word of caution, because lurking in the shadows of your success is a very common phenomenon that can take you by surprise: lifestyle creep.

Lifestyle creep happens when people increase their spending as they earn more. But it's not just spending more that can trick you, it's spending unconsciously. Let's say your increased salary means you feel you can eat out more often. That's fine. But soon you're eating out several times a week at more expensive restaurants. Or maybe you can now afford a new car, but you choose a model that puts a strain on your monthly budget. The added expenses just creep up on you and before you realize it, what you thought would be extra money is already spent.

But while improving your lifestyle may cost more, it doesn't have to derail your ability to get ahead. Here are some ways to both enjoy your increased salary today and protect your financial future.

Spend some, save some

Getting ahead is all about balance. It isn't realistic—or necessary—to save everything for the future. It's okay to give yourself permission to enhance your everyday lifestyle a bit. A few more nights out, that new laptop you've been wanting, a nice vacation—those are all things that can add to your quality of life as long as you stay aware and in control of the costs. So plan for them, budget for them and enjoy them. At the same time, keep saving for your bigger goals like retirement, a home down payment or a child's education.

Be mindful about what you buy

A budget gives you permission to spend a certain amount and helps you pay close attention to what you're buying and why. Before making a major purchase, ask yourself how long it will take to pay for it. Will you have to work longer? Is it worth what you're paying? Will your future self think it's worth it? Be wary of the buy-now-pay-later offers that seem to be everywhere. At some point, you have to pay the whole amount. Avoid impulse purchases or making a financial decision when you're feeling short of time or stressed out. And, of course, avoid getting into too much debt. That's another scary scenario!

Watch your fixed costs

Everyday discretionary expenses can add up quickly, but so can the fixed costs of upgrading your lifestyle. After all, big-ticket items can come with ongoing expenses. A larger home can mean higher property taxes and more expensive upkeep. That high-priced car can mean higher insurance and maintenance costs as well as a higher monthly payment.

And don't forget about smaller things like subscriptions, memberships and streaming services. Your increased income can make all these things seem like necessary additions. That's the scary part of the creep—what once was a nice-to-have now becomes a necessity and soon all your money is spent on "essentials" that really aren't essential at all. Suddenly there's nothing left for savings. Which leads to my next point.

Pay yourself first

One of the keys to getting ahead is to pay yourself first. Simply put—save before you spend. 401(k)? Check. IRA? Check. 529 Account? Check. House down payment? Check. Whatever you're saving for, make sure to tick those off before you spend on other things. In fact, list your savings goals as essentials on your monthly budget. Once those are covered, you'll feel freer to spend money on something else. The 50/30/20 rule is a good guideline: spend 50 percent of after-tax income on needs, 30 percent on wants, and earmark 20 percent for savings.

Make it automatic—and give yourself 'automatic' increases

Make saving even easier by putting it on automatic. If you have a 401(k), you probably don't think twice about the monthly contribution that automatically comes out of your paycheck. So make saving for your other goals equally effortless by setting up auto payments, whether that's to an IRA, a savings account—or even different savings accounts for different goals. The less you have to consciously decide what to save each month, the easier it will become.

The other decision you should definitely make is to increase the amount you save every time you get a raise. Even a small percentage can add up significantly over time. Consider that an extra $100 a month at a 6 percent return in 30 years would be almost $100,000!

Don't try to keep up with the Joneses, Kardashians—or anyone else

There's a lot of hype about what people spend money on, whether it's the latest real estate purchase of the rich and famous or the fabulous vacation your friend just posted on social media. Fear of missing out, envy, the desire to keep up—all these things can influence you to spend on something that doesn't really matter to you. Try to keep your own goals and values front and center.

Turn not spending into a positive!

It's not uncommon to equate being able to spend with being rich. On the contrary, saving and investing rather than spending will actually help you build wealth. So when you're tempted to spend money on something you don't really need and choose not to, emphasize the positive. By not spending today, you'll not only be stopping lifestyle creep in its tracks, you'll be giving yourself more choices down the road. And to me, using your money to create opportunity is the essence of getting ahead.

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The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager. 

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

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