As your income increases, it’s natural for your spending to go up. But when you secure a big promotion, it’s important not to let your purchasing habits get out of control. If you loosen your belt too much, you might end up neglecting your other financial goals like saving for retirement.
To help you avoid lifestyle creep, here are four of my best tips.
Save at least half of raises and bonuses
When you get a raise or holiday bonus, it’s tempting to spend it all on lifestyle upgrades like a new handbag or nicer car. But if you use some of that unexpected income to pay off debt or build your savings instead, you’ll be in a much better financial position.
As a freelance writer, I don’t get typical raises or cost of living adjustments like an employee would. But whenever I increase my rates, I make sure to put at least half of that additional income into my savings and retirement accounts. I also transfer the money I intend to save out of my checking account as soon as possible so I don’t get a chance to spend it.
Wait a week before buying things
Like many people, I used to have a problem with impulse spending. The average American spends about $5,400 per year on unplanned purchases. Once I looked at my bank statements and saw how much spontaneous coffee runs and mall excursions were costing me, I decided to try to be more intentional about my purchasing habits.
One of the ways I’ve done this is by waiting at least a week before I buy the things I want. This helps me figure out if I really want the item I’m eyeing or if I’m just trying to distract myself from boredom or stress by shopping.
Set a fun money budget
Another thing that I do to reign in impulse spending is set a budget every month for nonessential purchases like coffee and crafting supplies. I set aside around $200 that I can spend on whatever I want. Usually I don’t end up using it all and save it for larger purchases like the new camera I’m planning on buying.
Setting a fun money budget allows you to treat yourself within reason while still meeting your financial goals. It’s also a great way to ensure that your discretionary spending doesn’t increase too much when you get a raise or promotion.
Be realistic about how much living space you need
Another big source of lifestyle inflation is renting or buying a larger home than you really need. If you’re truly outgrowing your living space, paying a little more for housing may make sense. But it’s important to ensure that you’re upgrading for the right reasons.
A year ago, I found myself wanting to move into a bigger apartment because I was running out of closet space. My living room was cluttered with photography equipment and crafting supplies, and I thought that getting a second bedroom would help contain the mess.
It turns out I didn’t really need a more expensive, two bedroom apartment—after all, I’m just one person. Getting a few storage containers helped me organize my belongings better and made my apartment functional again, so I didn’t need to move and pay an additional $800 per month in rent.
If the main reason you want to relocate is to have more room for all of your stuff, it’s a good idea to explore other, less expensive options first. Selling some of the things you no longer use or hiring a professional organizer could help you fall in love with your home again and avoid having to take on a higher mortgage payment.
Living below your means is essential if you want to have a comfortable retirement in the future. With these tips, you’ll be able to avoid unnecessary, impulse purchases and save more of your income.