We all know how exciting it is to receive an income boost. Extra income can mean saying goodbye to ramen noodle days and hello to happy hour hangouts with friends. The lifestyle creep that comes with extra income can be inevitable, but its important to limit these new extra expenses in order to meet long-term financial goals. This RealEstate article by Stefanie O’Connell can help teach your how to limit your extra spending when receiving a raise or any other type of extra income.
When you get a raise or a tax refund or some birthday cash, the first thing that probably pops into your head is a list of ways to spend that extra money.
Maybe it’s upgrading your phone, or taking that vacation you’ve been dreaming about, or finally getting around to completing that bathroom remodel you’ve been wanting.
While there’s nothing wrong with the occasional splurge or lifestyle upgrade, it’s important that these extra expenditures don’t become a regular habit — eating up the entirety of your pay increase or financial windfall with added spending that leaves you with nothing leftover to dedicate to longer-term financial goals.
Sure, a little lifestyle inflation is ok. At some point, you’ll probably want to ditch the three roommates, ramen and used Ikea furniture. And your expenses will inevitably climb in certain situations, like when you start a family.
But if you continue to spend more every time your income grows, you’ll never be able to build true financial security or make progress toward your big picture financial goals — no matter how much money you earn.
This phenomenon, labeled lifestyle inflation, really becomes an issue when your increased spending starts to become more habitual and less intentional, and prevents you from building financial security or reaching your long-term financial goals.
These four strategies can help you keep your own lifestyles inflation in check.
Track Your Spending – and How You Feel About It
Just because you’re making more doesn’t mean you should stop paying attention to your money. In fact, tracking your spending is arguably more important as you experience increases in income, as reviewing your day-to-day purchases will let you know whether you’re really getting the most out of the extra money you’re making
You don’t want to get into a situation where you spend more and more and never feel any happier or better off as a result.
By tracking your spending and considering how you feel about where your extra dollars are going, you can make better spending assessments. Deciding what lifestyle upgrades are really worthwhile and what long-term saving and investing choices might serve you better.
You can even use an app like Joy that tracks your spending and asks you how you feel about each purchase, so you can make smarter more intentional money decisions every single day.
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