After a few years as a trader at JP Morgan, Vivian To took a hard look at her finances. She realized that even though she was earning more than she had right out of college, she had the same amount saved. “To be honest, it wasn't a lot,” she admits. She realized she'd fallen victim to a common mistake: a “lifestyle change.”
The phenomenon occurs when rising income leads to rising expenses, so your savings account doesn't benefit from your increased income. “You move up in your career, you start making a little bit more money, and then all of a sudden you want a nicer apartment. You want a nicer car. You start eating out. You start going to the nail salon,” Tu told PS, explaining the term.
Of course, upgrading your lifestyle is a completely normal and natural response to increased income — it's one of the reasons we work so hard to get a raise, right? But if you start mindlessly shopping just because you have more disposable income, it could hold you back from reaching your long-term financial goals. Even if you earn a six-figure income, your shopping habits could become so costly that you run out of money before payday.
“A lifestyle change is spending money without understanding where it's going,” says personal finance coach Judy Esber, 2019. It's a common experience, as people often feel they don't need to pay as much attention to their budget when their pay rises.
Increasing income also impacts our friendships. “When you earn more, you create an environment where other people are richer and have different ways of living,” says Esber. Think about it: If all your coworkers go out for $20 lunches every day, you're less likely to bring in a PB&J sandwich every day.
So what can you do if you want to avoid this mistake? Here are some suggestions from financial experts:
Experts featured in this article
Vivian Tu, also known as Your Rich BFF, is a personal finance content creator and author of Rich AF.
Judy Esber is a money coach specializing in ethical investing and founder of Hear Me Finance.
Tori Dunlap is a money expert, founder of Her First $100K, and author of Financial Feminist.
How to avoid lifestyle changes
Act with Intention
Avoiding lifestyle changes doesn't mean you can't spend more when your income increases. “It's totally fine to reward yourself after achieving something big, like a pay raise,” says Tori Dunlap, money expert and founder of Her First $100K. “But it's just as important to be financially responsible and invest in experiences and products that really matter to you.”
The key is to be intentional: “My rule of thumb is to feel free to spend money on things that you love and that align with your values, and save on things that are less important to you,” says Dunlap.
Anytime you get a raise, Esber recommends sitting down and asking yourself how you want to spend the money. “If you get an extra $200 a month, you might decide, 'I'm going to buy that gym membership I've always wanted and pay $75 a month, and then I'm going to invest the other $125 for retirement,'” Esber says. “So you're still spending money to enjoy life, so you still have those new perks, but you can't just devote it all to the here and now without thinking about the future.”
Automatically save and invest a portion of your salary
Tu often tells her clients, “You are your own biggest enemy, so you need to become your own biggest ally,” which means actively protecting yourself by making saving easy.
Instead of depositing 100 percent of your paycheck into a checking account, she suggests W-2 employees deposit 10 percent into a savings or investment account, and recommends freelancers set up automatic deductions into their savings accounts. “These automations take the thought process and emotion out of making smart decisions for the future,” she says.
Track your spending
Of course, the only way to know if a new expense is creeping into your budget is to closely monitor what you're buying. “Using a budgeting app or a simple spreadsheet to categorize your spending can help you get a clear picture,” says Dunlap. It might seem basic, but it can help you identify if unnecessary expenses are derailing your budget.
Questioning your beliefs about money
If you're making more than you expected, check to see if self-limiting beliefs are holding you back from reaching your financial goals. Esber says people who grew up believing they'd never be able to save enough to retire comfortably or buy a home are easy victims of self-sabotage. Because they believe it's unrealistic, they don't take the steps necessary to get there.
“I've worked with women who made high incomes but didn't believe it was possible to buy a home because they'd heard so much about the housing market being in disarray,” says Esber. By charting the numbers, Esber helped them see that it was, in fact, achievable, and many were able to buy their first property within a year or two.
Convert money into time
Money can sometimes feel like an abstract concept, especially when spending it involves just the touch of a keypad on your phone or watch. Instead of looking at the dollar value of what you want to buy, Tu suggests thinking about how much time you'll need to dedicate to get it.
“For example, if my take-home pay is $20 an hour, I want to order a $20 sandwich from DoorDash. That's one hour of my labor,” Tu said, adding that this allows her to more accurately assess the value of the things she buys while still giving her the freedom to spend on expenses she can justify.
be patient
Remember, even if your new income doesn't buy you a luxury car, vacation, or the latest iPhone right away, it doesn't mean you'll never have it. “One of the most helpful things for me has been learning patience,” Esber says. “If you want to achieve your future goals, you may not be able to budget for everything you want right now, but if there are things you really want, you'll be able to slowly get them.” That's what savings are for.
Don’t shy away from conversations about money
In our culture, it's still taboo to talk about how much money you make or how you spend it. But both Esper and Tu say that talking more openly about money could help everyone plan their budget better. So talk about your goals and ask how others achieved them. “We feel more empowered when we know what other people are spending,” Tu says. “I don't think we talk about money enough.”
Jennifer Heimlich is a writer and editor with over 15 years of experience in fitness and wellness journalism. She previously served as Senior Fitness Editor at Well+Good and Editor in Chief of Dance Magazine. A UESCA-certified running coach, she has written about running and fitness for publications such as Shape, GQ, Runner's World, and The Atlantic.
