Income/lifestyle creep

[quesyrah]

My Husband just got a significant raise. I’m sitting here dreaming of all the things we can do with that money lol! But I also don’t want to just blow it all, I’m aware of how your lifestyle can creep up as your income increases and I want to be smart. We have no debt other than our mortgage and owe $72,000 on our house but we are in no rush to pay it off. We have 10 years left.

What are some ways you balance more income with being smart financially?

[keweenawlove]

When I got a big raise, I made sure I maxed out 401k so if you're not already maxing that and Roth's I would do that.

[k3am]

I budget for and try to live off our old salaries. My budget has built in salaries that we made a few years years ago. So when a paycheck comes in for $1000, but my budget has it built in for $750, I move $250 out of our checking account and into a CapitalOne account where it's harder to spend.

[Susie]

If I don't have a goal in mind, I just set up a monthly or biweekly transfer for the increased amount, and put it in savings until I can come up with a good goal.  Then at least I don't lose track of the gain.

Right now I'm in a phase of not being great at coming up with the next goal, so I am less helpful there.

[bee20]

As keweenawlove , says, this is a great time to re-evaluate your retirement. Not just to maxing if you are not, but if your lifestyle increases your retirement savings need to increase too, or else you'll be unable to keep your new higher standard of living in retirement. I recently got a decent raise but have oversaved for retirement so needed to find a different goal.


What I did was wait until the new paychecks settled in and decided to divide the extra payment into 5, to be "one day" of earnings per week and then put that day to work.

So if the new takehome was say $500 more per week, then each of these would get $100/week.:

>1 day's takehome a week to increased standard of living and splurges. So far I signed up for a community education class that always looked fun but felt splurgy. I try to use this up monthly instead of saving it because I am an over-saver.
>1 day a week to increasing my donations to nonprofits. I've been donating weekly as the mood strikes but may set up some auto-pays.
>1 day a week to a travel fund, which is an increase over my existing budget.
>1 day a week to house projects I would like to do but haven't splurged on (fresh paint, new slider, etc).
>1 day a week to post-tax savings for early retirement (I'm ahead on this but couldn't not save some of it).

You may have different priorities but it helped me to set it up in one day increments (you could also do one per month over the course of the year if you have more goals) so I could feel the perk of the increase and because I have a tendency to over-save. It feels weird since I haven't needed to budget this closely in forever, but it's really no different than a change in income which goes lower.

And ETA, how I avoid lifestyle creep on a comfortable income is setting up auto-deduct to savings from checking every year and increase it with the normal inflation increases so that only what I want to spend is hitting my checking account.  Then I just need to keep an eye on my checking balance monthly and it it's within the tolerance for the goal amount at the end of each month, I have met the budget.  This works because usually I'm under this budget and can use the extra at the end of the year for donations.  I realize this makes me sound uber wealthy but I spend less than anyone I know, my family was necessarily very frugal and I haven't been able to lighten up much even though I make a good salary now.

[quesyrah]

May 3, 2022 13:23:46 GMT -5 bee20 said:

As keweenawlove , says, this is a great time to re-evaluate your retirement. Not just to maxing if you are not, but if your lifestyle increases your retirement savings need to increase too, or else you'll be unable to keep your new higher standard of living in retirement. I recently got a decent raise but have oversaved for retirement so needed to find a different goal.


What I did was wait until the new paychecks settled in and decided to divide the extra payment into 5, to be "one day" of earnings per week and then put that day to work.

So if the new takehome was say $500 more per week, then each of these would get $100/week.:

>1 day's takehome a week to increased standard of living and splurges. So far I signed up for a community education class that always looked fun but felt splurgy. I try to use this up monthly instead of saving it because I am an over-saver.
>1 day a week to increasing my donations to nonprofits. I've been donating weekly as the mood strikes but may set up some auto-pays.
>1 day a week to a travel fund, which is an increase over my existing budget.
>1 day a week to house projects I would like to do but haven't splurged on (fresh paint, new slider, etc).
>1 day a week to post-tax savings for early retirement (I'm ahead on this but couldn't not save some of it).

You may have different priorities but it helped me to set it up in one day increments (you could also do one per month over the course of the year if you have more goals) so I could feel the perk of the increase and because I have a tendency to over-save. It feels weird since I haven't needed to budget this closely in forever, but it's really no different than a change in income which goes lower.

And ETA, how I avoid lifestyle creep on a comfortable income is setting up auto-deduct to savings from checking every year and increase it with the normal inflation increases so that only what I want to spend is hitting my checking account.  Then I just need to keep an eye on my checking balance monthly and it it's within the tolerance for the goal amount at the end of each month, I have met the budget.  This works because usually I'm under this budget and can use the extra at the end of the year for donations.  I realize this makes me sound uber wealthy but I spend less than anyone I know, my family was necessarily very frugal and I haven't been able to lighten up much even though I make a good salary now.

This is really great, thank you!

[quesyrah]

Good thoughts, thank you all!

We definitely need to take a look at retirement savings and see where we are. I do think we get lazy about increasing personal contributions because he also has a nice pension.

[quesyrah]

May 3, 2022 13:07:58 GMT -5 Susie said:

If I don't have a goal in mind, I just set up a monthly or biweekly transfer for the increased amount, and put it in savings until I can come up with a good goal.  Then at least I don't lose track of the gain.

Right now I'm in a phase of not being great at coming up with the next goal, so I am less helpful there.

There is a fairly expensive vacation we’ve been wanting to take and this raise will easily get us to the budget we need. So I think we’re going to splurge on that and then reign it in and put the raise into savings.

Immediately my thought was “new car!” “Ooh that expensive purse I want!” “DH can get the new tools he’s had his eye on!”

So I want to let us splurge a little but not look back a year from now and wonder where all that money went.

[midwestmama]

Congrats! With big increases, we typically identify a few things.

Our usual list, not necessarily in order:
1. Increase 401k/retirement savings.
2. Identify what debt we want to pay off faster.
3. When we plan a vacation, maybe we fly instead of drive and/or stay at a bit a nicer place than we would have before and/or stay an extra night.
4. Identify home improvements that we can either do or save faster to be able to do. (Our house is 20 years old, so there are things that need to be done.)
5. Increase savings. (If you don't have an e-fund, it might be something you start. I have money direct-deposited into our e-fund from each of my paychecks because that was an easy way to keep the fund growing.)
6. See if there is a charity organization we either want to start donating to or increase our donations.

[aspentosh]

Congrats!!

Like many others, we look at where we can save more (maxing 401k, Roth IRAs, upping 529 contributions, general investment savings, etc), then move onto paying off debts, then making sure we celebrate with a bit of it.

Personally we max all 401k and IRAs that we can, and like you we only have mortgage debt, so it's usually about FIRST increasing our general investments, then finding a new house project or vacation to save for. If we haven't set up a new project or goal, then I immediately increase what goes into savings. So if we are getting another $250 per paycheck, all of that is saved so we don't even notice a difference in his take-home pay.

Maybe it's lifestyle creep, but we also try to splurge on some things more now... like someone above said, staying in a nicer AirBnB if we travel or dining out more when we do go on vacation (instead of cooking in). It's important to celebrate life when you can!

[egishere]

We went thru this earlier this year. We met with a financial advisor. We have upped our 401k contributions and are looking at making a few other investments with liquid cash we have. The only thing we have done differently as far as spending is have our house cleaners come every other week now rather than just once a month! I would like to travel more too but we haven't gotten around to that yet.

[wildrice]

I think the biggest thing for me is that I am pretty averse to taking on more commitments. So although our HHI has almost doubled in the last 3ish years, we did not move to a more expensive home, we didn't buy a new car, and haven't taken on any other debt. We did add some "frivolous" things to our budget like a housecleaner and monthly massages for us both, so we aren't living exactly like we did on a tighter budget - but I think living below our means in some ways means we have a good balance.

I also think just having a line item in the budget for saving (or wherever it is that you want to direct your money) is important. Sometimes we don't hit our saving goal for the month and that's fine, but knowing what we intend to spend vs just spending mindlessly helps reign it in a bit.

[shaynaatl]

DH has received some large unexpected raises recently, so we are in a similar situation. I'm of the mentality that lifestyle inflation is perfectly normal. Of course, the key is deciding what items to inflate (you can't have everything!). We are spending more on one-time things, such as vacations and clothes. We feel we could cut back on these items if our finances change for the worse.

We are reluctant to spend on expenses that are recurring, such as a new luxury car or upgrading the house.

The other key is making sure you are truly getting enjoyment from the items you are inflating.

[quesyrah]

May 4, 2022 13:01:07 GMT -5 wildrice said:

I think the biggest thing for me is that I am pretty averse to taking on more commitments. So although our HHI has almost doubled in the last 3ish years, we did not move to a more expensive home, we didn't buy a new car, and haven't taken on any other debt. We did add some "frivolous" things to our budget like a housecleaner and monthly massages for us both, so we aren't living exactly like we did on a tighter budget - but I think living below our means in some ways means we have a good balance.

I also think just having a line item in the budget for saving (or wherever it is that you want to direct your money) is important. Sometimes we don't hit our saving goal for the month and that's fine, but knowing what we intend to spend vs just spending mindlessly helps reign it in a bit.

This is something we’ve talked about and want to be aware of. DH (our only income) was furloughed for over a year while his place of work was shut down during the pandemic. So many of our friends struggled more than we did due to big mortgages, newer cars, etc. Really the only reason we were okay is that we didn’t have a ton of payments to cover each month, and also the lack of spending going out and doing things helped.

We have a modest home and are lucky that we don’t owe a ton on it. We drive older, paid off cars and in general don’t really have any monthly payments other than our mortgage and bills. I would love to do a remodel and buy a new car, but man that year of furlough really scared us (our e fund is almost back to fully funded now) and I’m nervous to spend too much.

[quesyrah]

May 4, 2022 13:39:58 GMT -5 shaynaatl said:

DH has received some large unexpected raises recently, so we are in a similar situation. I'm of the mentality that lifestyle inflation is perfectly normal. Of course, the key is deciding what items to inflate (you can't have everything!). We are spending more on one-time things, such as vacations and clothes. We feel we could cut back on these items if our finances change for the worse.

We are reluctant to spend on expenses that are recurring, such as a new luxury car or upgrading the house.

The other key is making sure you are truly getting enjoyment from the items you are inflating.

I love your last line- definitely something to keep in mind.

I also don’t want to end up spending that money on recurring expenses.

[niq]

At this point any found money goes to one-time expenses: home renovations, expensive home goods, or travel. But our "found money" is stock-based compensation, which is a little unusual.

If I got a BIG raise I would use automatic transfers for save-to-spend for big ticket items, and save-to-save to move money into Backdoor Roth, 529s, or taxable investments.

[quesyrah]

May 4, 2022 17:00:02 GMT -5 niq said:

At this point any found money goes to one-time expenses: home renovations, expensive home goods, or travel. But our "found money" is stock-based compensation, which is a little unusual.

If I got a BIG raise I would do save-to-spend for big ticket items, and save-to-save to move money into Backdoor Roth, 529s, or taxable investments.

529s is something we definitely need to get sorted. We are very lazy about saving for kids college for various reasons.

[niq]

May 4, 2022 17:07:58 GMT -5 quesyrah said:

May 4, 2022 17:00:02 GMT -5 niq said:

At this point any found money goes to one-time expenses: home renovations, expensive home goods, or travel. But our "found money" is stock-based compensation, which is a little unusual.

If I got a BIG raise I would do save-to-spend for big ticket items, and save-to-save to move money into Backdoor Roth, 529s, or taxable investments.

529s is something we definitely need to get sorted. We are very lazy about saving for kids college for various reasons.

Some states have these monthly plans, but (1) they're contractual, so if your finances bounce around it seems like a bad idea, and (2) it seems more MM to do a big lump sum contribution once a year or once a quarter. The monthly plans feel like a convenience for people who have a hard time saving money (which, fair! it's hard!)

[Roc A Bee]

Every time I’ve received a raise, I’ve made sure to increase my retirement contribution. I have no debt other than our house.

If I got a significant raise, had no debt, was ok for retirement, and had an e-fund, then I’d let the lifestyle creep 🤷🏻‍♀️ Life is for living so I’d get the housekeeper, get the facial, go on the vacation, whatever that means to you.

[arehopsveggies]

This year we went from $30k to $80k and next year should be $90k

I opened Roth IRA accounts and threw money at those

I put at least $500 a week in savings. I try hard to spend as little of my income as possible.

We have splurged on a few house projects (like new windows). And I love Hello Fresh so I’m treating myself to that twice a month.

But then our grocery bill seems huge lately (partly wanting convenience foods since I’m busier, and not having time to coupon as well…partly kids eating more, and partly increasing costs overall)… and gas has gone up a lot. So that’s eaten some of the increase.