After a raise, watch out for lifestyle creep eating into potential savings.
Updated: Oct 9
Original article by:
Leah Golob
THE CANADIAN PRESS
May 10, 2022
📰 Read the FULL ARTICLE here.
I spoke with The Canadian Press about lifestyle creep and how to make sure a raise actually moves your finances forward. Here are the highlights and my contributions.
Key Takeaways
Lifestyle creep happens when spending on non-essentials quietly rises along with your income.
A strong job market has led many people to switch jobs for higher pay, but inflation and the pressure to keep up with friends can quickly eat into those gains.
Even after a raise, people can stay stuck living paycheque to paycheque, and self-employed people with irregular income face the same risk.
Tracking your spending and planning for extra income before it arrives are the keys to keeping lifestyle creep in check.
Automating savings lets you enjoy some of your raise while still building your net worth.
My Perspective
I often see lifestyle creep with clients who are caught in a paycheque-to-paycheque cycle. Even after a raise or a new, higher-paying job, they stay stuck, because their spending slowly rises to match whatever money is available.
"Subconsciously we just end up adjusting our own spending based on what we see is available in our chequing account."
Combatting lifestyle creep comes down to tracking your expenses, since most problems start when you're not aware of how money is moving in and out of your account. When you get a raise, make a plan for the extra money. If you don't need it to keep up with inflation, set up automatic savings contributions to grow your net worth.
I do this with my own income so that "future Cindy" can benefit from my savings, which I call my freedom fund.
"The way I spin it is, allow yourself to spend more because you're making more, but also allow future you to spend that money."
Whether to upgrade your lifestyle is a case-by-case decision. If you've been dreaming of a bigger apartment that always felt out of reach, a raise can be a good time to make that move. But if you're suddenly thinking about things you never needed before, it's better to resist the temptation than to buy right away.
Originally published in The Canadian Press by Leah Golob on May 10, 2022. Use the link at the top of this post to read the full article.
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