At the end of each calendar year, my full-time employer reviews our performance and decides if we deserve a raise, and if so how much we should get. They are willing to consider our input as far as what we feel that we’ve accomplished, things we need to work on and learn more about, and what direction we’d like to go in the future, but in the end they are the ones making the call as far as how our personal finances are affected.
At the end of 2014, I got a 5% raise. I was pretty excited about this as that is certainly more than what many employers in my community are known to give out for an annual raise. But I knew I needed to immediately review my 2015 budget and make some adjustments before lifestyle inflation got the best of my raise (and then some).
Thankfully, I was able to put most of my raise toward debt and savings rather than wasting it on lifestyle inflation. Here’s how you can avoid lifestyle inflation when you get a raise.
Needs vs. Wants
I’ve been known to have a champagne taste on a beer budget for
most all of my life. I’ve always been a fan of the finer (aka more expensive) versions of things. One way I’ve tried to control this problem is by recognizing the difference between needs and wants. In fact, my co-worker and I were taking the other day when she said, “I need some new Sperry’s” and I responded, “Do you NEED them or do you WANT them?”. After a moment of consideration she admitted that they are a want and not truly a need. But then she shocked me by saying “You are so good at establishing the difference between needs and wants. I wish I was as good at that as you are.”!!!
I was so flattered by this statement as recognizing the difference between needs and wants and acting accordingly has been a struggle of mine. I have gotten better at it, but sometimes I still give in to my wants.
Have a Plan
As I said before, after finding out how much my raise was going to be, I immediately crunched some numbers and make a plan for my new budget. By not waiting for that “extra” money to be in my pocket I made sure it was put to good use on paper before I could waste it on something meaningless. When you know a raise is coming, you should already have an idea in mind for how to use that money. Sometimes this may include upgrading things and giving in to lifestyle inflation, but most of the time if your lifestyle is already comfortable you should put that money toward something productive.
Track Your Results
Having a plan in place isn’t enough on its own. At the end of each month (or however your budget is set up), you should track and record how you actually spent your money. Just because you plan for your raise to go toward debt doesn’t mean it always does. By tracking where your money actually went (like new shoes!) you’ll be able to see what your spending triggers and habits are. Then it will be easier to fix them.
What do you do to avoid lifestyle inflation?