Got a raise? Avoid lifestyle inflation!

Every year most of us will get a raise (hopefully) of some sort. A lot of us have the impulse to just spend it on stuff we want. I am here to say we need to combat that urge! There is nothing wrong with getting things you want but only in moderation.

Example: You get a $200 per month salary raise. Possible steps to take:

  • Pay down debt! (if any): If you have debt outside of a mortgage pay it down with the extra $200 per month. Add it to your monthly payment amount.
  • Increase retirement contributions: This is easy and comes directly out of your paycheck so your never miss it. Maybe add $100 of your new raise to your contributions or set up automatic deposits to your IRA account(s).
  • Send directly to savings: If you are still working on an emergency fund or other savings goal adjust your direct deposit to have it go directly to the savings account.
  • After the above are satisfied it is OK to use some of your raise for wants.
If you make a conscious effort to direct your increased earnings to the proper channels you will always come out ahead. The key is to make the adjustments immediately so you don't procrastinate or forget. Laziness and indifference are the enemies of the rich!