[E10] Mastering the Mindset of Escalating Income (How To Fight Lifestyle Creep)

<p><strong>What is Lifestyle Creep?</strong></p><p>In the most basic sense, lifestyle creep is a natural reaction to spend more money as you make more money. It can be good or bad...it’s all about how you handle it.</p><p><strong>Examples of lifestyle creep include:</strong></p><ul><li>Buying a bigger house</li><li>Upgrading your cars</li><li>Going on a shopping spree</li><li>Getting loose with your budget</li></ul><p><strong>The Good:</strong> You work hard so that you can enjoy life and provide for your family  </p><p><strong>The Bad:</strong> The problem is when your lifestyle upgrades in lockstep with your increasing income (or, worse, it outpaces). </p><p><a href="https://www.betterment.com/resources/lifestyle-creep/">Dan Egan Quote</a>: “By my estimate, for every additional $100 in monthly lifestyle spending you start having before retirement, you’ll need about an additional $30,000 at retirement to keep steady.”</p><p> </p><p><strong>Equation</strong>: $100 per month x 12 months per year x 25 years in retirement = $30,000</p><p><strong>Mindset:</strong></p><p>The truth is that lifestyle creep is purely a mindset game - not a numbers game. There’s no one telling you that you have to do something with your pay increase...in fact...all other factors tend to remain the same. (Unless the pay raise comes with a move to an expensive new city, there’s no requirement for spending more.) </p><p>It’s all about your mindset. Good habits will help you maximize the increase. Bad habits will make you wish your income never increased.</p><p><strong>Tips for Overcoming Lifestyle Creep</strong></p><p>1. Spend the first increase on whatever you want</p><p>2. Max out your savings and investment goals</p><p>3. Treat it like windfall money (Episode 5)</p><ul><li>Beef up emergency fund</li><li>Pay down high-interest debt</li><li>Invest in yourself</li><li>Joy multipliers</li></ul><p>4. Use the 25% Rule</p><ul><li>25% goes to spending and lifestyle increases</li><li>75% goes to saving, investing, growth opportunities</li></ul>