We Make More Money Than Before. Where Did It All Go?

One of the biggest financial myths...

“When we make more money, it will be easier to save.”  

“I will save more when I get a raise!”

“Life will be so much easier when I make _____ amount of money.”

Have you heard these?  Have you said them yourself?

It is common for people to make higher incomes as they get older.  It is less common that those same people will save more.  More likely is people after 5-10 years later ask themselves the title of this post… "Where did it all go?"

Lifestyle Creep

A common problem for Americans is lifestyle creep.  As a worker advances her career, she might think that her financial picture would improve.  This is often NOT the case!  As income increases over the years, expenses likely go up as well.  

People soon find out that they also have more burdens as time goes on.  They buy a home.  They get married. They have kids (which I’ve heard can be expensive).  Health insurance premiums rise.  A new car is needed. They move to a bigger home.  More and more obligations arise.  

They were living paycheck-to-paycheck before, and they live paycheck to paycheck today.  

Does this sound familiar to you?

Waiting until you can afford to save is a loser’s game!

Rules Rule!  

One way to combat this all too common problem is to SYSTEMATICALLY allocate your saving/spending budget when income goes up.  By having a rule beforehand that you are committed to following will help you defend against lifestyle creep while at the same time give you permission to increase spending over time.  

An example: Have a rule that every time you get a raise at work, half goes to financial goals and the other half goes for increasing your lifestyle.  

If you get a 4% raise at work, you will take 2% and increase your 401k contribution, debt repayment plan, or whatever your financial goals are.  The other 2% you are free to add to your expenses.  You might say, “But I need all 4% for my obligations to my family!”  And that is the point.  You will always have new obligations that are important and you will likely never get around to saving more.

Put your financial goals ahead of your current comfort. Trust that eventually, you will get to the point where your consumer debt is gone and your retirement savings are on track.  Then, you will feel comfortable with your decision.  

Contrast this to the family who NEVER gets to the point where they are on track and as a result always has financial stress and anxiety.  

The SYSTEM  will save you!