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When should you upgrade your lifestyle?

Lifestyle creep keeps a lot of people in a chokehold. And if you watch finance or money-related videos, you’re likely very familiar with this term.

It basically involves upgrading your lifestyle “unnecessarily” every time your income increases.

So you might drive a car that’s in good condition and live in a house that’s suitable for your family. Yet, as soon as you get a pay bump, you’re stepping it up to the next level – just because you can.

Now, as your income increases, some lifestyle creep is to be expected. There are likely things you want to do but can’t because of low funds. So there’s nothing wrong with using some of your newfound cash to make life more enjoyable.

But how do you really know if it’s okay to bump up your lifestyle once your income increases?

I feel there are times when you shouldn’t change a thing.

Here are two guidelines that I think will help anyone in this situation:

The first thing you want to do is look at your current net pay—not your gross, but your take-home pay or what you have left over after taxes and other payroll deductions.

You want the number to be as accurate as possible, so this will involve grabbing your most recent pay stubs or looking at your bank statements to get a clear idea of what you’re earning prior to your pay increase.

For this scenario, let’s say your net pay is $50,000 a year, or approximately $4,200 a month.

Once you have this figure, next consider whether you’re able to live comfortably on that amount. In other words, has that $4,200 a month (or whatever it is for you), been enough?

One of three things will be true:

1). Either it hasn’t been enough, meaning you’re in the hole every month and you might use credit as an extension of your income.

2). It might just be enough, meaning you have nothing left over after paying your bills and you’re living paycheck to paycheck.

3). Or it’s more than enough and you have room in your budget to pay bills, to save, to pay off debt, etc.

Once you know where you stand, you can then decide whether it’s wise to upgrade your lifestyle.

Remember, before the pay increase your net pay (or your take-home pay) was $50,000 a year. Now let’s say with your new salary, your net pay jumps to $60,000 a year, so you’re bringing home an additional $10,000 a year. 

What should you do?!

Simply put, if your old salary was JUST enough or NOT enough to cover your bills, and now you’re bringing home an additional $10,000 a year – DON’T UPGRADE YOUR LIFESTYLE.

I recommend keeping things as much the same as possible. An extra $10,000 in your bank account each year, which comes to an extra $833 a month, means that you’re no longer living paycheck to paycheck.

For the first time in probably a long time, you have wiggle room. You can now set financial goals and get ahead. But that’s not going to happen if you start living at that $60K level!

The last thing you need to do is upgrade your lifestyle.

If you move into something that’s slightly nicer, get a new car when your current car works just fine, or start spending a lot more on recreation and entertainment, you’re going to eat through that $800 and end up right back where you are now – broke, living paycheck-to-paycheck, and complaining about it.

The best thing you can do is pretend that a pay raise never happened. And yes, I know that will be very difficult. But I guarantee, it will be one of the best financial decisions you can make for yourself.

But then again, maybe you had more than enough money before your pay increase. Using the same scenario of a $50,000 take-home pay, maybe you were only spending $30,000 or $40,000 of that money.

And if so, that changes things. In this situation, you CAN afford to increase your lifestyle a little. If your yearly take-home increases to $60,000 a year, you can safely upgrade your lifestyle by $10,000 and be okay. Because you were already living beneath your means.

The bottom line: If you’re currently struggling and you get a slight bump in salary, do everything within your power to keep your spending the same. This way, you can actually benefit from the extra money and hit some of your financial goals.

On the other hand, if you already had plenty of disposable income and a salary increase widens the gap between your income and expenses, a little bump in lifestyle isn’t the end of the world.

Even so, don’t bump up everything at once – maybe increase spending in only one or two areas.