Matt Cardy / Stringer / Getty Images
Think about the last time you got a raise or a bonus. It was exciting, right? It was so exciting that I bet you felt the need to go out and celebrate.
After years of sacrificing and living off ramen noodles, getting a raise or a bonus can feel like you’ve won the lottery. So it’s only normal to want to upgrade your wardrobe, buy a new car, or eat out more.
While it’s entirely OK to reward yourself, it’s also important not to squander your new gains on short-sighted purchases.
Lifestyle creep, also known as lifestyle inflation, can sneak up on you and prevent you from building an emergency fund or properly saving for retirement.
As you get used to a more expensive way of living, budget-friendly meals and clothing outlets lose their appeal, and you may end up using your credit cards to keep living the way you are used to.
It can end up causing you to fall into debt, with no nest egg to rely on in an emergency.
In this article I’m going to give you six simple ways to avoid lifestyle inflation when you get your next bonus or pay increase. You can start by rewarding yourself – but in a responsible way…
No, you don’t have to adopt a “no spending” lifestyle. It’s normal to want to treat yourself for all your hard work. The trick is to do it strategically.
Instead of going on a shopping spree where you buy anything that attracts your eye, shop thoughtfully. Spend intentionally.
If there’s something you want, write it down, but don’t buy it for 30 days.
If you still want it after 30 days, buy it. This helps cut down on impulse spending and helps you focus on things you really want.
It is important to give yourself some wiggle room and freedom with your budget, so you do not feel deprived.
Create a “fun fund” by depositing the majority of your raise or extra cash into savings and setting aside a small portion for enjoyable but unnecessary purchases.
For instance, let’s say you get a raise that equals $200 a month.
To prevent lifestyle inflation, you would set up an automatic deposit of $150 to your savings or retirement accounts, and $50 would be allocated to your fun fund to spend on extras that you want, such as new clothes, games, or dinners out.
Make additional contributions to your emergency fund and retirement before anything else.
This way, any additional money is automatically deposited, and you will not even miss that money. You’ve been getting by on your current budget, so with the addition of your fun fund, you should not need to touch the other money at all.
