How to Make Sure Costs Don’t Increase Too Much After a Wage Increase

Lifestyle drift can also happen to the self-employed with sparse incomes. (Photo: The Canadian Press)

In early April, Kelsey Cruz did what many do during a time of low unemployment and high demand for talent: she quit a job she loved for one that promised new challenges and higher salaries.

In his new role, the 26-year-old Torontonian earned a $ 40,000-per-year increase, but is still worried about overspending as his lifestyle rises with his salary, especially at a very high inflation. .

“I feel like many of my friends and people I hang out with are going through a similar situation. They’re all fine, so sometimes it’s like you’re trying to keep up with them, and it can be expensive, ”he said.

Cindy Marques, co-founder and CEO of MakeCents, a financial coaching company for millennials, said she often sees lifestyle drift, a phenomenon where discretionary spending on non-essential items seems to increase in tandem with a person’s salary. people, with clients still caught up in a cycle where they pay their bills from one salary to the next. Even after getting a raise or a new job with a higher salary, they still remain living on salary up to salary.

“Unknowingly, they are slowly adjusting their spending agreement based on the money they have. They can use everything without really improving their financial situation, “observes Cindy Marques.

Lifestyle drift can also happen to the self-employed with sparse incomes, says Cindy Marques. Whether their month is good or a busy month, any extra income always ends up in spending.

Kelsey Cruz said she has seen her costs rise. Since getting her new job, she’s been spending that extra income on daily groceries at Starbucks, going to bars and restaurants more, and riding Uber without hesitation.

“There are a lot of unnecessary monthly expenses, but because I earn more, I think it’s OK just because I can do it and because I often think to myself that” I deserve it “when it comes time to spend money.”

A plan for extra money

The resistance to this lifestyle development comes from tracking your spending, believes Cindy Marques. Most problems arise when you don’t know how money goes in and out of your account.

“Unconsciously, we end up adjusting our own expenses based on what we see that is available in the checking account,” he explained. There seems to be nothing really strange. ”

Instead, recipients of the increase must prepare a plan for the extra money they will earn. If it’s not related to responding to cost inflation, Cindy Marques recommends that Canadians set up automatic savings contributions to use some, or all, of those additional funds to increase their net worth.

Cindy Marques said she did it with her own earnings so that “cindy in the future” would benefit from her savings, which she called the freedom fund.

“The way I look at these kinds of things is to be able to spend more because you have a bigger income, but to be able to afford to spend that money in the future,” he said.

For those wondering whether they should use the extra money to improve their lifestyle, Cindy Marques believes in looking at these situations on a case-by-case basis.

For example, if someone has dreamed of renting a larger apartment since the beginning of the pandemic, but always seems financially unattainable, the increase is a good time to consider allocating more money on a move.

However, if you occasionally think of things you can buy that you didn’t need before, it’s better to resist the temptation than to buy right away, he believes.

In the case of Kelsey Cruz, she was able to strike the right balance between aging and enjoying the fruits of her hard work.

“In the new job, I had to look at my finances and create a new budget to make sure I saved more, but I also spent more money on entertainment and personal care services, nails and the hairstyle. “

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