New Job, New Money: How To Avoid Lifestyle Creep And Build Your Wealth
If you’re reading this you either –
Got a new job, Congratulations!
“Wait, I got a raise?!” — Congratulations!
Looking for a new job and planning to shift to get paid more... Also, Congratulations!
No matter which of those options you are, getting a new job is exciting especially if you expect to get paid more. With more money, it’s natural to want to reward yourself after all your hard work. But with more money comes more responsibility, and it's important to manage your finances wisely to avoid lifestyle creep—a common trap where your spending increases as your income grows, leaving you no better off than before. I keep seeing this saying around the social media algorithm: “Just make more money to afford the life you want”. While this is what you just accomplished, my goal as a Financial Planner and Educator is to show you how to handle your means and build money systems to help you manage your more [money].
A thing that I’ve been having folks focus on is how much that “more” that they’re going to be receiving going to impact their budgeting - is it enough to be finally comfortable or better where you were? Is that 3% enough to handle how inflation looks in your life right now or does taxes eat it for lunch? Yes — you’re being paid more, but knowing how it comes out in your account would allow you to be more accountable for how it aligns with your goals, gains, and GPS.
A study by the Bureau of Labor Statistics shows that the average American household spends about 97% of its income on living expenses, which doesn't leave much room for savings or investments. But I don’t want you to be like the 49%. This is the percentage of Americans who received a pay raise in the past year increased their spending. While life costs are inflating due to the economy and greed, I want you to understand your internal economic indicator. So, how can you avoid falling into this trap and make the most of your new income? Let’s break it down in layman’s terms with practical steps.
Understanding Lifestyle Creep
If you’re a Millennial, I’m not talking about TLC. But a notion from the song saying “nobody has to know” when it comes to how much money you blow just because you get paid more is why so many people make more and it doesn’t feel like it. Before we dive into strategies, let's quickly define lifestyle creep. It's when your spending habits automatically adjust upward to match your increased income. You might find yourself upgrading your car, dining out more frequently, or indulging in more expensive hobbies. While it's tempting to reward yourself, unchecked spending can quickly offset your salary increase. While at this time inflation is giving us all a bit of an unwanted lifestyle creep on the cost of living, people often want to upgrade their lives when they hit a new bracket. Keep in mind that I’m not telling you that you can’t treat yourself, but being tactful in how you track your money is key.
Step 1: Assess Your Current Financial Situation
If you’re new to my platform, one of my sayings or isms is that you should “audit your wallet”, which is understanding where you are financial. Looking at your bank statements, credit statements, budgets, etc to see if you’re up-to-date on your bills, how’s your spending, how’s your budget, saving, retirement, and other financial goals. Understanding if you have a “gap” of how much extra you need to be conformable - you will learn how much more to ask (along with market research) but gives you the baseline of how much your life costs. Before you make any decisions, take a good look at your current financial situation. What’s coming in, and what’s going out? Knowing where you stand is the first step in building a solid financial foundation. If you're not sure where to start, check out my other blog post on budgeting basics.
*I would also make sure that you negotiate your new salary/ promotion to fill the gap that you could be or have been experiencing. Make sure that it’s fair to not only your excellence but how to fill any potholes that might be in your budget/wallet. Do the “Audit Your Wallet” exercise to see how much of a “Gap” you may have and increase the fill by at least 10-20% (ask for how much you would need to earn but also that bump), because, you know taxes.
[ I spoke about this on this podcast called “The Climb”. Whether you just hit six figures or trying to figure out your new pay bump, this episode is a great listen!]
Step 2: Choose A Budgeting Method That Works for You
When it comes to budgeting, there’s no one-size-fits-all solution. It’s important to choose a budgeting style that fits your lifestyle, spending habits, and financial goals. Your budget should be more realistic and reflective of your actual expenses (life costs) rather than sticking strictly to ratios, which would be the Paycheck and Zero-Based Methods. Here are a few popular budgeting methods:
50/30/20 Budget
This budgeting ratio is often what is suggested to people when they start to learn and leverage their money. So I knew I had to provide context on what it involves. This method allocates:
50% of your income to needs (rent, groceries, utilities)
30% to wants (dining out, entertainment)
20% to savings and debt repayment
This budget is great for those who like a balanced approach between spending and saving. However, if your needs or wants don’t fit neatly into these categories, you may need to tweak the percentages to better match your reality. Maybe you will find that your wants will pull that 30% to be a bit more. If this is you, you might want to try this.
70/20/10 Budget
Another one that is often suggested when it comes to people wanting to start a budget - no matter if they have a new role or realize they need to manage their money better. This method divides your income into:
70% for needs and wants combined
20% for savings and investments
10% for debt repayment or charitable giving
This budget works well if you're focusing on building savings while managing debt. Again, adjust the ratios if your spending patterns differ significantly from these percentages. Not a lot of people use this method, but I still wanted to share.
Zero-Based Budget
Zero-based budgeting is about giving every dollar of your income a specific job, ensuring that your income minus your expenses equals zero. This method involves allocating your income across all your expenses, savings, and debt repayment until there’s nothing left unassigned. Zero means zero.
This method is particularly effective if you want to be more disciplined with your spending and ensure that every part of your income is working toward your financial goals. It's especially useful for those who have specific goals, such as paying off debt, saving for a large purchase, or building an emergency fund. One of my favorites to suggest to my community and my clients.
Paycheck Budgeting
Paycheck budgeting involves creating a budget based on each paycheck, rather than a monthly or yearly income. This method is great if your income fluctuates or if you’re paid bi-weekly or irregularly. You allocate each paycheck toward your expenses, savings, and goals, ensuring that your financial needs are met as you get paid.
I’ve talked about paycheck budgeting in detail on my YouTube channel, where I explain how to budget effectively whether your income is steady or fluctuates. It’s a practical approach that can help you stay on top of your finances no matter how your paycheck comes in.
Step 3: Make Your Budget Realistic
Once you’ve chosen a budgeting method, take the time to make it realistic. A budget is only effective if it aligns with your actual spending habits and financial goals. If your current budget isn’t working—whether you’re consistently overspending or not saving enough—don’t be afraid to adjust it. Remember, the goal is to create a budget that you can stick to, not one that’s overly restrictive or based solely on ratios. Going back to Step 1, doing a check on not only your budget, but your statements over the last 3 months to see how things are swiping and stacking. I would suggest you run whichever budget you decide to do with this new or potential income (after you get a just of the taxes that might/will come with it) for at least 60 days.
Step 4: Automate And Allocate: Multiple Bank Accounts
I’ve always said that diversification isn’t just for your investments but your dollars as well. To make budgeting easier, consider setting up multiple bank accounts:
Primary Checking Account: For bills and regular expenses.
Life Costs Account: For groceries, transportation, and other variable costs.
Savings Accounts:
Regular Savings: Keep a small amount (no more than $100) for quick access.
High-Yield Savings Account (HYSA): The rest should go into a HYSA, which earns more interest. My favorites are Marcus by Goldman Sachs and Ally, which offer savings buckets (or sinking funds) to help you manage different savings goals. Need to learn more about these types of accounts? Watch this here.
This setup ensures that your money is organized and that you're consistently saving and preparing for the future. When you take the time to find a system that works for you and your money, you might find that you might not need this many accounts. Having multiple accounts will make it easier for you to not swipe your bill money at your favorite store.
Step 5: Build Your Savings, Retirement, And Pay Down Debt
When you get paid more, you have more leverage you have towards your goals for later. With a higher salary, you have the opportunity to build your financial future. Here's how:
Savings: Allocate a portion of your income to an emergency fund, aiming for at least 3-6 months of living expenses. When you look at your budget or expense plan, you can determine how much this looks like on the month or the paycheck.
Retirement: You can contribute to your 401(k) at your job (if this is an option) or IRA. If your employer offers a match, make sure to take full advantage of it. If your employer doesn’t match or match as much, you can build your IRA to scale for later. I talked about these other options to build up your retirement savings.
Debt Repayment: Use some of your extra income to pay down high-interest debt, such as credit cards or personal loans. List out your debt and get to knocking it down. Will touch on debt snowball and avalanche later.
Step 6: Don’t Forget Fun Money
It’s important to enjoy the fruits of your labor. Set aside a small portion of your income for “fun money”—guilt-free spending on things that make you happy. Just be sure it fits within your budget! I talked about having a tier system of things you like to do for yourself: $0-$25, $26-$50, $51-$100, and even more. Then determine how often would you use that fun money and align it in your budget to spend, save, or spave (spending and saving).
Step 7: Build A Strong Money Mindset
Let me tell you about my wallet from years ago. When I first started making more money, I was hesitant to spend it. After working jobs where I earned as little as $10.71 an hour and experiencing a layoff that left me unemployed for years, the thought of spending my new 6 figure income was scary. I was afraid that if I spent too much, I’d end up right back where I started.
However, I soon realized that building a strong money mindset was key to managing my new income wisely. Instead of letting fear guide my financial decisions, I focused on creating a budget that allowed me to save for the future, pay down debt, and still enjoy my life. This balance was crucial in helping me avoid lifestyle creep and make the most of my new salary.
Here are some insights I gained from that jump in money and mindset:
Gradually adjust your lifestyle: Don't feel pressured to immediately upgrade everything.
Set clear financial goals: Having objectives helps guide your spending and saving decisions.
Invest in your future: Increase retirement contributions and explore other investment options.
Allow for some lifestyle improvements: It's okay to enjoy your hard-earned money in moderation.
One book that helped me during this transition and I recommend is The Psychology of Money by Morgan Housel. It dives into the emotions and behaviors around money, helping you understand why you make the financial decisions you do and how to improve your relationship with money. This book offers valuable insights into how our emotions and experiences shape our financial decisions (here are some more books I recommend).
Major takeaways:
Understand your relationship with money
Learn to balance present enjoyment with future security
Recognize that financial success is more about behavior than knowledge
Everyone talks about the more of income, but not the more of the impact. Your mindset with your money can make direct inflation in how you handle your money. More money doesn’t always mean more problems. But I’m not going to tell you that money doesn’t buy happiness, it buys you options. I want to make sure that you’re focused while funded but not fumbling it.
Step 8: Use Budgeting Tools To Stay On Track
While I talked about some amazing budgeting apps now that Mint is gone, using an app will make it easier for you to apply this new income to make an impact on your finances. To make budgeting easier, consider using one of these platforms:
Monarch Money: Offers a comprehensive view of your finances and helps you plan for long-term goals. Here’s a direct link to the platform.
YNAB (You Need A Budget): Focuses on giving every dollar a job, perfect for zero-based budgeting.
Copilot Money: Provides personalized insights and real-time tracking.
Some folks love spreadsheets, and some love apps - I just want you to fully start understanding your money. You can’t measure what you don’t track. Even if you make more money, if you’re still noticing that you’re not making a path to closing that gap and hitting your savings, retirement, and debt repayment goals - that means you need to reel it back by understanding your money.
What If: Your New Salary Falls Short Of Expectations
Sometimes, a new job doesn’t bring the salary boost you hoped for. A Robert Half survey found that 43% of workers who switched jobs during the pandemic took a pay cut. If you’re in this situation, here’s how to handle it:
Negotiate Non-Salary Benefits: Ask for perks like flexible hours, extra vacation, or professional development.
Adjust Your Budget: At the beginning of this blog post, we talked about auditing your wallet to see where your money currently goes—apply that here. Prioritize essentials and cut back where possible. Holding gratitude for what you have can help you manage this financial threshold with a positive mindset.
Explore Additional Income: Consider freelancing, part-time work, or starting a side hustle to boost your income.
Build Your Skills To Pay The Bills: Use this opportunity to gain valuable experience and skills that can lead to better-paying opportunities in the future.
Reassess Compensation After 6-12 Months: When negotiating a raise, use market research BUT also add in your calculations when it comes to your work contributions and the gap in your current compensation. This ensures you’re asking for a fair and justified increase.
Remember, a lower salary doesn’t define your worth. Stay focused on your long-term career goals, and continue to build your skills and network. Gratitude and strategic planning will help you navigate this phase successfully.
Conclusion
Getting a higher salary is a major milestone, but it’s important to manage your money wisely to avoid lifestyle creep. By choosing a budget that fits your needs, making sure it's realistic, automating your savings, and building a strong money mindset, you can make the most of your new income and set yourself up for long-term financial success. Remember, it’s not just about what you make—it’s about what you do with it.
For more budgeting tips, check out my other blog posts, and stay tuned for more financial insights! If you need additional help with your money in your new role, check out who we help! Comment if you have any questions about your new job and money!