This is a part of a newsletter from my wealth management company. I was hesitant about sharing this article because the way it is written implies it concerns only very well off people, so I felt like it will be perceived as “rich people problem.” Still, I believe that the issue is rather universal, and that any time someone experience a substantial increase in income, there is a possibility of the “lifestyle creep.” I think, that stories about people who won a lottery and soon found themselves broke, can be attributed to the same effect.

Here is how this article starts:

Lifestyle creep happens when your expenses increase alongside your income. As you earn more, it’s easy to spend more freely, perhaps without much thought. As income increases, it’s only natural to want to improve your lifestyle, and there’s nothing inherently wrong with that, either, up to a point. Without keeping tabs on the cumulative effect of daily financial decisions like business class upgrades or pricey dinners, it’s easy to lose track of how much you’re saving versus spending. After all, as the name suggests, lifestyle creep happens slowly.

For high earners, there’s enough cash coming in that makes it easy to cover just about any upgrade, so the cost can seem small when considering the big picture. But unless you’re tracking your saving and spending, you risk getting used to a lifestyle that you can’t support once you stop working. So the key to enjoying your success now — and maintaining that standard later — is ensuring your savings rate increases at least as much as your additional spending.

I do not want to cite practical calculation examples from this article, because most people do not have that kind of money, but the general idea is that when a person ‘s income increases substantially, they should use not more than half of this increase for “quality of life improvement” (actually, they recommend 30-40%), and the rest should go to increasing the retirement savings. Again, the principle behind it is that people expect to maintain the same lifestyle after retirement as they had before, so they should budget for that.

The final paragraph of the article reads:

You can only spend a dollar once. But there’s also no prize for being the richest person in the graveyard. Being intentional about how you spend and save your money can help you maximize both. So before upgrading to business class, run the numbers to see how all your incremental lifestyle improvements add up relative to your savings.

I think that balancing between these two (“enjoy the day” and “richest person in the graveyard”) is indeed difficult, and I do not think I always make right decisions. But I know since the time I was very poor (and it happened to me more than once during my lifetime) that budgeting is critical, and good budgeting can improve one’s life more than moderate pay increase. Of course, I am not talking about people leaving below the poverty level, and of course, I am not implying that everyone should be happy with what they have. It’s the season of giving, after all.

Well, I really hope I didn’t offend anybody, and I hope that I was able to express my thoughts.