Have you ever noticed that a raise or bonus brings joy, quickly followed by a desire for a new car or a home improvement? The phenomenon is called “lifestyle creep”, and it refers to the habit of continually increasing the cost of your lifestyle simply because you can (as opposed to an actual need or an occasional splurge).
It’s just human nature, of course, but the effect can be detrimental to your retirement plan. To protect yourself against lifestyle creep, and spending yourself out of a comfortable retirement, consider these five steps as appropriate to your situation.
Shift your values from things to experiences. Research has shown that new things bring only temporary happiness, whereas experiences enrich our lives on an ongoing basis. Look for experiences that won’t break the bank but create lasting memories with the people you love.
Watch out for social media, too. Sometimes we want things because we see everyone else’s pictures on Facebook… not because we really want those things.
Don’t spend your entire bonus or raise. Spend a portion of your bonus on something you’ve wanted for a long time, because you do deserve a reward for all of your hard work. But aim to save at least half of it, or more if you can.
When you receive a raise, devote at least half of the difference to automatic contributions to your retirement plan. If you’ve hit the maximum contribution, consider catch-up contributions when you turn 50, or establish a rainy day savings account.
Find ways to fund lifestyle perks. If you just don’t want to give up on a luxury item, investigate ways to fund it without digging into your regular income. A temporary side job, for example, could help you earn the down payment on a new car.
Confront reality. Sometimes we don’t plan for the future (like retirement) because we don’t spend much time thinking about it. Meet with us regularly to discuss retirement, and it will begin to feel more “real” to you.