What were your first thoughts when you read the title of this article? Did you assume it was about what to do when you’re making less money? A lot of people have unfortunately experienced the challenge of having to go from living within one income bracket, to a lower one.
But what about the reverse pattern? You get a raise at work, you’re finally getting more hours, your husband gets his dream job…and suddenly you’re making more money. So, what do you do? Do you keep living as you were, or start indulging more?
If you’re like most, chances are you’ll start indulging more. Maybe a little bit at first, a dinner out here, an extra date night there. But before you know it, the extra money you knew would put you guys ahead of the game may be barely enough to cover your expenses.
You fell into the common trap of living within your means, even as your means changed. So, while one income level was once enough for you and your needs and wants, the higher income level changed your needs and wants in a way that forced you to spend that money too.
It may start small, but suddenly it’s spiralling out of control. This can be super dangerous for multiple reasons. First, you’ll never get ahead so long as you’re spending all that you earn, so you’re depriving yourself of financial success. Second, in increasing your spending without being mindful as to why you run the risk of outpacing your earning and living beyond your means before you know it – and that is not a fun place to pull back from.
Once you’ve had a taste of some of the luxuries you’d “always wanted to try” it can be hard to know when enough is enough, and when to pull back.
Now, I’m not saying you should never treat yourself. And celebrating a promotion is a natural thing to do in your position. But I am saying that you need to take some time and really think about where you want to go from here, to be mindful of how the new money will affect you.
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- What do you actually have to spend per day?
- How to Live within your means, even as they change
- Stop avoiding money and start making it!
- 10 Things I Know Now and Wish I Knew When I Was Younger on Being Financially Free.
- The 50-20-30 Rule
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Sit down with your partner and figure out your priorities. Do you have a current pressing need for that money? If not, what could you do to help it work for you? Is there an investment you two have been considering? What about a savings goal? Do you have an emergency fund in place? Whatever the case may be, chances are you have room for improvement (we all do) that doesn’t necessarily include eating out five times a week now.
Once you’ve sat and prioritised, you’ll be much more in control of spending the new cash. And if balancing the responsibility of new cash with indulgence in it is too much to manage, consider going with a hard and fast rule, like 50/50.
The 50/50 rule means that 50% of your new money must go into savings until further notice, and the other 50 can be considered disposable. This ensures that no matter what you’re doing with half of it, that another half is already working to help you get ahead.
This is just one sample strategy for what to do when you find yourself earning a bit more. So, congratulations on the promotion, enjoy the raise, but make sure it’s used to elevate your goals – not just your current way of living!