How to Avoid “Lifestyle Creep” (and Start Saving!)

Let’s paint a mental picture together…you’re at work, and you get a phone call.  It’s your boss…telling you…you’re GETTING A RAISE!

You calmly set the phone down…acting very cool and collected as you let the good news sink in for a moment…then suddenly…you valiantly rise up from your tiny cubicle in your ill-fitting khakis and begin performing acrobatic leaps through the office, whistling “Eye of the Tiger”, while fleeting images of all the amazing things you can buy begin filling the lobes of your brain…and……….“POW!”  

Hi…it’s me again, giving you a solid punch in the nose, in an effort to interrupt this ridiculous daydream you’re having.  So snap out of it.  (Yeah, I realize I kinda led you right into that one. Sorry, I can be cruel at times.)

Here’s an ice pack, now let’s move on.

We get a raise, and what’s the first thing we all do?  Start figuring out how much more our paycheck will be and visualizing what we’ll do with it; how we can “live a little higher on the hog” with this increase in extra cash.  Now, I’m not a complete killjoy; no doubt getting a raise is something to celebrate (heck, pop open some cheap champagne if you like), but let’s be smart about it…what you do with it, is where you can separate yourself from everybody else.

When you think about it…pay raises are sneaky little buggers…they result in a slow and steady rise in income, which nearly always leads to what has been called…(insert drum-roll here)…“lifestyle creep”.   For your convenience, I’ve provided a lovely definition here:

Definition: “Lifestyle Creep”

“A situation where people’s lifestyle or standard of living improves as their income rises.  As “lifestyle creep” occurs, and more money is spent on lifestyle, former luxuries are now considered necessities.”

— courtesy of Investopedia.com

In other words, when you make more money, you spend more money.  If you’re anything like I was, no matter how much I made over the years, I managed to spend it…all.   I never had “extra” money; I was yet another victim of “lifestyle creep.”  My pay would go up, and the spending would follow soon after, without even trying.   The thing about small incremental pay raises is that, individually, they’re not enough to be life-changing.  But my point is that while it may not seem like enough to bother saving it, it’s also not enough that you should really miss it, either.

The days of just letting your money and your finances happen TO you, are OVER.  You need to be in the driver seat, in control of your finances, fully conscious and acting with intention.

So where do we go from here?  It’s time to be strategic about our pay raises.  These are bright, shiny opportunities for us to make a difference in our financial situation, for the better.  Trust me, you won’t even miss these little increases to your paycheck.  JUST. TRUST. ME.  To do this, we’ll let the good ‘ol Direct Deposit* system work to our advantage.

* I realize not everyone has direct deposit at their disposal, but this was written with the assumption that you do.  If you don’t have direct deposit available at your employer, you’ll just need to be all the more diligent about tucking your money away with the same method I describe, but manually.  

Let’s get started…

1.   Determine what your monthly net (take-home) pay is.  For this example, let’s use $4,000.

2.   Determine what your monthly expenses are.  Add up your bills, groceries, gas and a modest (but satisfying) amount of spending money, and set that number aside.  For this example, I’m going to use $3,000 as the monthly expenses.

3.   Next, divide your monthly expenses amount by the number of paychecks you receive in a month.  I get paid twice a month, so I will divide $3,000 monthly expenses by 2, to get…$1,500 of expenses per paycheck.

4.   Now I have the FIXED AMOUNT that I will have sent to my CHECKING ACCOUNT……$1,500.   Perform the calculation yourself, and enter that amount on your direct deposit form with your checking account information.

5.   Next, direct the REMAINDER of your paycheck into your SAVINGS ACCOUNT.   Once you’ve entered your savings account information, there should be a checkbox that says “Remainder”, or something similar, where you indicate that you want the rest of your paycheck sent to your savings account.  Now turn in the form to your HR department. 

6.   One last step.  Please now engage in the acrobatic leaps I described in our daydream earlier (ill-fitting khakis are optional), because you just made a huge step forward in managing your finances.  You have made a conscious decision to make your spending and expenses a fixed amount, and allow your savings account to grow right along with your future raises.  Here’s a virtual high-five in the air, because you have managed to do what a majority of working people don’t.  (And yet they wonder…year after year, raise after raise, why they still feel broke).

You will be amazed how quickly the balance in your savings account grows.  Then, year after year, with every pay raise, you’ll smile with glee as you see that beautiful little pile of extra cash deposited into your savings account without you lifting a finger.  The fact is, humans are emotional creatures; the more we put our finances on auto-pilot, the less damage we can do.

So I’ll leave you with this…get up out of your cubicle (I know you’re reading this at work…you naughty little thing) and contact your HR department.  Start the process…avoid “lifestyle creep” by fixing your expenses and allowing your pay increases to be escorted straight to your savings account.  This LITTLE change will reap you HUGE rewards.