Hi Ruth,
Since getting a pay rise, I’ve noticed my spending has crept up almost without me realising it. Nicer meals out, small upgrades, even a more luxurious holiday. I thought the extra income would mean more savings, but my account balance looks the same as before. How do I enjoy the rewards of my hard work without letting lifestyle creep eat away at my progress?
Increasing your pay is a solid move, and I hope you took a moment to give yourself a pat on the back. But, without even noticing, minor upgrades to your stuff or little luxuries begin to nibble at your new income — nothing extravagant, just little shifts and increases in spending. But add them all up, and you know you’ve blown your pay raise.
You are experiencing classic lifestyle creep. Put simply, lifestyle creep occurs when an increase in spending matches an increase in income.
It’s sneaky, it’s subtle, and if you don’t keep an eye on it, you can work harder and earn more year after year, yet feel like you’re standing still financially. By spending your pay increase, you lose the chance to make real progress toward your financial goals.
Humans are great at adapting. I’ve seen this happen in my own life. Where I was once happy to stay in a shared room at a backpacking hostel, and eat my store-bought cereal in a communal dining room, I now stay at a hotel with a full buffet breakfast included.
The “accommodation creep” was a gradual process of small adjustments in our spending, and none of us are immune.
I don’t think you should deny yourself the enjoyment of your money. What’s the point of working hard if you never get to enjoy the money you work so hard for?
Start budgeting for enjoyment as part of your everyday personal finances. I know I do. We allocate a set amount of money weekly to a specific sinking fund for Fun.
Having this set up in advance means you won’t ever feel like you are hanging out for a treat, and you won’t deprive yourself of fun in anticipation of a pay increase to pay for it. Build in the ability to consistently enjoy and reward yourself so that it doesn’t all hinge on an annual pay raise.
Work out what percentage of your income is currently being allocated to a ‘fun’ bank account, and now, apply the same rate to your new income. This way, you will receive an increase to your ‘fun’ account, but it will be in proportion to your pay bump.
This is a pay raise, not a treat. Having had a dog by my side my entire life, I’ve always been mindful that if you give a dog an inch, it will take a mile. The temptation to instantly spend your bump in pay is the same. You anticipate it coming, you spend it when it does, then it’s straight back to anticipating the next pay round.
Which is why creating a plan for your pay increase, before it even arrives, is crucial. You can quickly step in and intercept human conditioning. Switch your thinking from what I could ‘buy’ with it, to what I could ‘create’ with it instead. With your pay raise safely sitting in its own bank account, actively make a plan to allocate this additional income to goals that grow your financial well-being. Whether that be to pay off debt, or buy assets, spend your money in a way that grows your wealth over time.
Before your pay raise even arrives, confirm your current income and expenses with PocketSmith:
Examining your spending before and after your pay raise can be very revealing. You can ‘find’ extra money from the current pay you receive, and create an even bigger gap between income and expenditure, which gets an additional boost when your pay raise arrives.
While you might have thought your pay raise would have an impact, you didn’t actually do anything concrete about ensuring that happened. Let’s now do that.
When the big day arrives, and your pay increase hits your bank, a winning strategy is to identify the exact dollar amount and immediately move it out of harm’s way, before you have a chance to spend it. Move it to a separate bank account while you decide where to allocate it in your budget.
It’s out of sight and can’t be frittered away. Instead, you make a plan on how to utilise it.
Lifestyle creep isn’t a one-time battle; it’s an ongoing war. Every pay raise, bonus, or even windfall is a fresh opportunity for creep to sneak in. You have to be on guard, and your monthly finance check-in is your first line of defence.
Whenever your income increases, take a pause. Adjust your automatic transfers, check your spending patterns, and make a deliberate plan. This small reset ensures you’re still steering the ship instead of drifting.
Lifestyle creep loses much of its power when you are hyper-aware of your expenses and you have financial goals to grow your wealth. Deliberately choose where you allocate your precious income.
If you’ve noticed your account balance hasn’t budged since your pay went up, don’t panic. You’re not alone. In fact, just noticing that something is out of kilter in the first place is a step in the right direction.
However, don’t just drift along. Instead, take charge by knowing your numbers and having a plan. This way, you can enjoy the feeling that comes from the extra income, but instead of blowing it, you can use it to build your wealth.
A pay raise is an opportunity to build a lot more freedom later, not just to live a little larger today. Use it wisely, and you’ll get the best of both worlds.
Got a burning money question for Ruth? Send them through to [email protected]!
Ruth blogs at thehappysaver.com all about how she and her family handle money. What’s the secret? Spend less than you earn, invest the difference, avoid debt and budget each dollar that flows through your hands. She firmly believes that if you can just get the basics right, life becomes easier from there on in.
