How to Keep Lifestyle Inflation Under Control After You Get a Raise

Many of us feel stuck on a financial treadmill. No matter how much we earn, we never seem to make any progress toward our long-term goals. Could the culprit be lifestyle inflation? If you’re trying to get ahead, follow these tips to keep your spending under control.

Mentally Prepare Yourself

Lifestyle inflation sneaks up on you. After a pay bump, you start thinking you’ve earned a fancy new car, should go out for dinner more often and have to buy nicer clothes to match your new status. Suddenly, these become necessities that you think you could never live without. By being aware of this problem, you can watch out for extra spending before it gets out of control.

Figure Out the After-Tax Value of a Raise

When you find out about a new pay raise, you’re hearing the amount in pretax dollars. Be careful, because the amount you actually receive is quite a bit less. If you are in a 25 percent federal tax bracket, about a third of your paycheck will go to the government once you consider state income, Social Security and Medicare taxes. A $1,000-a-month raise will be less than $700 in your pocket.

The problem is that our minds think we have an extra $1,000 to spend every month, which tricks us into spending more than we should. By figuring out exactly how much extra you’ll have after tax, you can keep to a more realistic plan.

Plan Your New Spending

Once you figure out how much extra money you’ll have after your raise, create a budget for where that money should go. What amount do you want to save each month? How much will go toward paying down debt? How much will go toward fun spending like new clothes or dinners out? There’s nothing wrong with rewarding yourself; just make sure it’s part of a well-planned budget.

Save Money as Soon as You Get Paid

If you wait until the end of the month to tackle your financial goals, there’s a chance you might not have any money left. It’s hard not to spend cash that’s sitting in the bank account. Instead, as soon as you get your paycheck, your first move should be to contribute money to your retirement plan or pay off debt.

You could schedule automatic transfers so the money never ends up in your hands. This way, you completely avoid the temptation to spend.

Don’t Keep up With the Joneses

Avoiding lifestyle inflation can be tough when everyone around you is spending more on fancier things. Despite this pressure, you need to find a way to stick with your budget. You could suggest less expensive hangouts — like going for a hike or having a potluck dinner — to friends who invite you to participate in pricier activities.

Focus on Experiences, Not Things

Ultimately, you should treat yourself from time to time. You get a lot more bang for your buck by spending on experiences like a vacation or a concert than you do from buying more possessions. First, experiences are one-time expenses, so they are easier to budget. They also have a longer-lasting impact because you get to cherish those positive memories. Possessions lose their shiny appeal pretty quickly, which tempts you to go shopping again.

Don’t let lifestyle inflation get in the way of your financial goals. If you follow these tips, you’ll have more money left over for what really matters.

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