As you all know I am a teacher and sadly I do not get paid a lot. I do get a small increase in salary every year but the amount is so small as to be insignificant on a monthly basis.
With the new school year we got a slight increase (even after increasing contributions to my Flexible Savings Account) that now gives me $70 more per month.
I have decided to keep my budget the same as before the increase and to pretend that the $70 does not exist. I am doing this for three main reasons:
1. I can treat the ‘extra’ money like a bonus
2. It will add to the buffer in my ING Electric Orange checking account
3. I am not experiencing lifestyle inflation.
Lifestyle inflation usually occurs when you start to earn more money. In an effort to not see any ‘extra’ you increase your spending to match the increased level of income. I have decided to keep my budget the same and let the additional income roll over in my ING account where it is earning interest.
I actually will be using the extra money until December to pay off the LASIK card so that I can be free of that particular debt before January, when the interest rate becomes retroactive. I am not going to add that money to the budget however because I do not want to see it there.
I know this is a silly mind trick but it does help to keep me on track with my budget and it is one tool that really works for me.Since I do a sweep on the last day of the month to move extra money from my low interest checking to my higher interest savings accounts in ING then I will have a good amount that goes into the Overage account that can be used to reduce debt.
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That is wise advice for all… It is so easy to automatically spend more once you begin to earn more!
Very good technique. I use this also, but have a different use for it. I use some of the extra as to pay off debt, and some of the extra for anything I know is worthy of generating more income.
I have my paychecks allocated on a percentage basis. 7% to 401k then after tax 83% to my checking account and 17% to two savings accounts. This way, I’m able to enjoy a little bit of benefit after a pay raise, and so does my savings!
Great job avoiding spending creep! Fight against lifestyle inflation!
Hope to see you at FS one day.
Awesome work! This is a prime example of why becoming wealthy over the long-haul has less to do with how much income you make vs. how you manage your money. I can’t believe how common it is for people to say “if only I made $5k per year more, things would be easier”, and they just keep saying that despite how many raises they get.
If only more Americans would manage their money in a similar fashion, we wouldn’t have nearly the financial mess we do now.
-Blake
P.S.- I use ING Direct too, and now cannot imagine life without one of the world’s greatest online bank! 😀
BTW LuluGal – I personally believe teachers of the world should get paid the most! You guys are instrumental in shaping the world. At the very least, I hope you have a great amount of satisfaction knowing you are making a difference in people’s lives everyday!
Best, FS
Best thing to do is treat it as if you don’t have the money and save, save, save.
Good advice. But sometimes when salary increase and expense amount also increase. Fight against lifestyle inflation..
The best way definitely is to keep the budget the same, I know alot of people who make ALOT of money, meaning over 6 digits per month but are living pay check to pay check, and as a result they often go bankrupt 🙁 Which is really sad if you think about it.
Till then,
Jean
I never increase my budget just because my income increases. Income increases are ignored as all ‘extra money’ at the end of the month is rolled over into whatever my primary goal is. More income just means I get to my main goal faster which is always a good thing.
I will increase my budget based on wants/needs/goals though. I instituted a small clothing allowance in my budget after I realized I couldn’t go on wearing the same clothes and never buying new like I did in college. This made sense, so I did it. Likewise, I have a small ‘Apartment fund’ for whatever I need like new sheets or a bookcase or if I just want to have curtains. I did this because I otherwise never spend any money on these things…and I think I should.
A lot of people would consider these needs I suppose, but for me, they’re luxuries. I can survive for a long time without new clothes….I just won’t look as nice. I discovered that in college. I try to remember that and not let these little luxuries get in the way of my important goals. If I need to, I’ll cut them out of my budget for a time. And I think that’s the part that gets people in trouble. They put things in, but never consider taking things back out!
I am seeing it as effective rather than silly. Pretending that your $70 increase doesnt exist is a good mind trick for there are people who tend to overspend and swing out of their budgets when they get a salary increase. keep it up!