How to Pay Yourself with Every Raise

MacBook Pro, white ceramic mug,and black smartphone on table

Photo by Andrew Neel via Unsplash.com

I admit that my views on lifestyle inflation have changed. I now believe that intentional inflation is actually a good thing, despite what many experts advise. Seriously, just google the term “lifestyle inflation” and every article will tell you how to avoid it, or manage it, or why exactly it’s so nefarious. And it can be. But there’s a particular kind of balance to strike with it– because as your income increases, you should be able to live more comfortably and conveniently, spending on more wants than you were previously able to. Which is why I wrote a whole post about my own positive lifestyle inflation here.

But I do think that personal finance is all about hacking your own psychology, in a way, as building every positive habit seems to be. And while intentional lifestyle creep is good, there’s a trick I learned recently when it comes to investing in your future– one that I plan to use myself in favor of spending more money on day-to-day things. 

It’s called hiding your raises from yourself.

It’s so simple and obvious. I feel like I’ve heard it a million times and just thought “oh. Yeah. That’s a great idea.” but it never quite clicked until recently. 

Here’s what happened: I was looking at my retirement numbers and seeing a higher-than-ideal amount of years until I’d be financially independent, assuming I kept the same rate of investing. Of course, I knew my investments would increase as my salary did, but by how much exactly?

So I looked at the salary scale for my job, and noted how much more I could invest each year as I advance in my education level, number of years, etc. Something you do every now and then when you’re kind of a finance nerd. And I realized how much I could accelerate my financial independence by investing my raises– I could theoretically retire 10+ years earlier than projected. 

Which is when I remembered this ridiculously simple money psychology hack: hide your raises from yourself. Contribute the money automatically through your employer-sponsored retirement plan, and live on about the same amount (adjusting for some inflation) each year. To be honest, as a control freak, I’m not actually the biggest fan of total automation (post on this to come), but in this case, it just changes the game so much. 

Investing most of each raise, in addition to manually investing in my Roth IRA, financial independence and potentially early retirement quickly become much more of a reality than some long-term dream. 

You’ve probably heard of this idea once or twice. I know I have. But I also didn’t stop to really think about just how powerful it could be.

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