The New Year is a common time to see cost-of-living increases, bonuses, and raises. It feels good to be earning more, and we feel validated for the hard work we’ve put in. It’s a time to celebrate our success, but also a time to pause and make sure we don’t take it for granted.
Rising to the Raise
When we have more money, our first impulse is to spend it. As our income increases, we have a tendency to increase our standard of living as well. For example, maybe you used to stick to renting movies, but now you find yourself going to the movie theater more and more. Or, you may be finding it easier to eat out more frequently than stay in and cook dinner.
When we “rise to meet the raise,” we find ourselves becoming stuck living in the paycheck-to-paycheck cycle. When this happens, it becomes difficult to save money, be able to cover unexpected expenses, or be able to buy the things we want. We find ourselves becoming dissatisfied with what we earn without really considering why we are living pay check to paycheck. Consider this: it doesn’t matter how much money you make if you are spending every dollar that you bring home.
So, here are some things you can do with your hard-earned money, no matter how big or how small the boost to your income may be.
- Adjust Your Mindset
As we mentioned, it’s not about how much money you make; rather, it’s about how much you save. Look at this as an opportunity to save now to expand your opportunities later.
- Refocus on What Matters to You
Take some time to sit down and look at your values. What is important to you? What goals do you want to accomplish this month, this year, in the next five years? What do you find meaningful to you?
Answer these questions and then ask yourself if your current spending habits reflect your values and goals.
- Focus on the Trade-Offs
Remind yourself that saving money doesn’t mean you have to deprive yourself and stop spending money. It’s not just about cutting out spending, it’s more about spending money in a way that provides value to life and increases your long-term happiness and well-being.
When considering what expenses to cut down or cut out, ask yourself these questions:
- Do I spend this because it is important to me or because it is important to others?
- Do I spend this expense for short-term gratification or for long-term gain?
- Is this expense necessary? If it is not, is it an expense I can reduce or cut out without depriving myself too much?
Now that you’ve reflected on what matters to you, it’s time to re-evaluate your budget and make changes.
- Reduce or cut expenses that do not add value.
- Increase your allocation for emergency savings.
- Add or increase financial goals for what’s important to you.
- Track your new spending pattern for the next month and compare to your new budget. Revise again if needed.
By avoiding the temptation now to increase your spending to fit your new paycheck, and instead saving the extra money for the things that matter most to you, you’ll break the paycheck-to-paycheck cycle. By following this approach each time you receive a paycheck increase, you’ll experience greater and greater financial freedom.