Many of us like to consider what we’d do if we had more money. Think about it for a minute: If you had another $1,000 or $2,000 a month, what would you do with it?
Some of the things we think about might include buying a new car, upgrading to a bigger house, buying new furniture, or eating out more. I know that when my dad got a new job that paid more, my mom stopped making as many meals from scratch. All of a sudden, the pantry included a stock of prepackaged meals.
Increasing Expenses to Match Income
It is almost natural to respond to an increase in income with an increase in spending. After all, when you have the money, you might as well spend it! This tendency to spend more as your income increases is called lifestyle inflation.
When you make more money, it seems as though there are things that just have to come with it. A house that is a little bigger. Clothes that are name brand. A bigger car payment. A premium cable package.
Even if you don’t decide to spend big on new things, it is still possible to let lifestyle inflation creep in. In a lot of cases, it’s through small things. On a night when you don’t feel like making dinner, it’s easy to say, when you have more money, “I’ll just go get something.” When you aren’t as worried about pinching pennies and making sure you know where your money is going — because there seems to be a lot more of it — it’s easy to just let it slip through your fingers.
Really, even though it seems like more money means that you don’t have to pay attention to where it’s going, the truth is that you might need a spending plan or a budget even more. An increase in income doesn’t give you a pass to ditch a plan for your money.
What to Do with that Increase Instead
An increase in income can mean that you might be able to buy a few things you need, or reward yourself with a small vacation. However, it’s important not to let an increase in expenses become a permanent thing in your budget. Instead, here are a few things you can do with your increase in income:
- Pay down debt: If you have debt, this should be a no-brainer. An increase in income should go toward reducing your debt.
- Increase retirement account contributions: Instead of boosting your monthly cable expenses, boost your monthly retirement account contributions.
- Build the emergency fund: Your increase in income can go a long way toward building your emergency fund.
- Create passive income streams: Look for ways to put that increase to work for you. Start a side hustle, or create a dividend portfolio. It’s a great way to begin earning more money on the side and diversify your income streams.
- Bless someone else: You can also use a portion of your increase to help others. Use your money to donate more to charity, or to find some other way to help others.
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