How extra pay seems to go away
Think back to the last real raise you got. Now, be honest with yourself: where did that money go? If you’re like most people, you’re not entirely sure. The raise felt great for a month or two, and then somehow life just got a little more expensive and the extra money quietly disappeared. That, in a nutshell, is lifestyle creep, and I’d argue it’s one of the biggest reasons people who make good money still feel like they’re not getting ahead. This week, let’s talk about what it is, why it’s so sneaky, and how to keep it from holding you back.
Lifestyle creep is what happens when your spending rises right alongside your income. You get a raise, and instead of saving it, you upgrade. A nicer car, a bigger house, a few more subscriptions, dinners out that used to be a treat are now just a Tuesday. None of these things are wrong on their own. The problem is that when your expenses climb every time your income does, you end up running in place. You’re making more than ever and have no more to show for it than you did years ago.
Here’s what makes lifestyle creep so dangerous: It doesn’t happen all at once. Nobody wakes up and decides to blow their raise. It happens $50 at a time, one small upgrade after another, each one perfectly reasonable in the moment. That’s exactly why it’s so easy to miss. A sudden $2,000 expense would get your attention immediately, but $200 a month in slowly rising spending barely registers, even though over a year, it’s the same money. The creep hides in the fact that no single decision feels like a mistake.
These expenses add up, and next thing you know, it’s like your raise disappeared. I see this play out all the time. I remember a client who was thrilled to tell me about a big promotion and the raise that came with it. A year later, we sat down, and his savings hadn’t moved an inch. The raise was real, but so were the new car payment, the club membership, and the vacation that got a little nicer. He wasn’t being reckless; he genuinely couldn’t point to anything extravagant. That’s the whole trap. He’d simply let his lifestyle rise to meet his income, dollar for dollar, and his future didn’t get one bit closer.
The real cost of lifestyle creep isn’t just the money you’re not saving today. It’s that every increase in your lifestyle raises the bar for what you’ll need in retirement. The more you spend to live now, the bigger the nest egg you’ll need to maintain that same life later. So creep hits you twice. It steals the money you could have saved, and at the same time, it makes your target number bigger. That’s a tough way to reach financial independence.
So how do you fight it? The trick isn’t to never enjoy your money; it’s to decide where the money goes before it has a chance to disappear. My rule of thumb is simple. When you get a raise, give at least half of it a job before you ever see it. Bump up your retirement contributions, add to savings, or knock down debt automatically, so the increase never lands in your checking account and never gets a chance to become a habit. What you don’t see, you don’t spend.
Now, I’m not telling you to live like a monk. You worked hard for that raise, and you should absolutely enjoy some of it. The difference between a reward and lifestyle creep is intention. A reward is a choice you make on purpose. Creep is what happens when you don’t make any choice at all. Decide in advance what you’ll do with a raise, and you get the best of both worlds: a little more enjoyment today and real progress toward tomorrow. And if you’re not sure how much you can afford to enjoy versus save, that’s a great conversation to have with your advisor. Give every raise a purpose before it arrives, reward yourself on your own terms, and you’ll finally start to feel like the money you earn is actually moving you forward.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations.
