“Don’t Be a (Lifestyle) Creep! How to Use Your Raise to Build Wealth”

Summary

Podcast Summary: “Don’t Be a (Lifestyle) Creep! How to Use Your Raise to Build Wealth”
Money Rehab with Nicole Lapin
Release Date: May 15, 2025

In this insightful episode of Money Rehab with Nicole Lapin, titled “Don’t Be a (Lifestyle) Creep! How to Use Your Raise to Build Wealth,” host Nicole Lapin, alongside co-host Joe, delves into the pervasive issue of lifestyle creep and offers practical strategies to harness salary increases for wealth building. The episode features an engaging discussion with a listener-guest who shares personal experiences and seeks guidance on managing newfound income effectively.

1. Understanding Lifestyle Creep [02:38 – 04:56]

Nicole Lapin kicks off the episode by introducing the concept of lifestyle creep, describing it as the subtle yet significant increase in expenses that often accompanies a rise in income. She explains:

“Lifestyle creep or lifestyle inflation... your paycheck goes up, and suddenly so do your expenses. That bigger paycheck somehow feels like it's not stretching any further, and you're wondering why you're still living paycheck to paycheck. Big problemo.”
— Nicole Lapin [02:38]

Co-host Joe reinforces this notion, highlighting how both price inflation and lifestyle inflation contribute to financial stagnation despite income growth.

2. Guest Introduction and Personal Story [03:13 – 04:39]

The episode features a listener-guest named Joe, who shares his journey of experiencing lifestyle creep after receiving salary raises. Joe outlines his financial trajectory:

“I went from making 125 to 145 over the last seven years, resulting in an overall 20k jump. But I haven't seen that 20k reflect in my savings at all.”
— Guest [03:19]

Joe details how initial salary increases led to higher expenditures, such as upgrading his living situation and indulging in annual subscriptions, thereby negating the benefits of his raises.

3. Financial Impact Analysis [04:49 – 06:04]

The discussion transitions to assessing the financial impact of lifestyle creep. Joe explains how his increased income was absorbed by rising living costs and personal expenses:

“We were renting a townhome in South Orlando, and with the market the way it was, rent was the same as buying a house. So we decided to buy, and that’s where it started... annual passes for Disney and other increasing expenses.”
— Guest [04:49]

Joe admits to struggling with budgeting for personal finances, despite tracking company expenses, attributing it to exhaustion after work.

4. Introducing the 50-30-20 Budgeting Rule [06:27 – 08:05]

Co-host Joe introduces the 50-30-20 budgeting rule as a foundational strategy to combat lifestyle creep:

“50 for necessities, 30% for wants, 20% for savings. It's a guideline... when you get a raise, you should take that net new money and apply the same budgeting rule.”
— Joe [06:27]

He breaks down how applying this rule can help allocate funds efficiently, ensuring that increases in income contribute to long-term financial goals rather than immediate gratification.

5. Managing Debt and Investments [08:22 – 12:37]

The conversation shifts to managing existing debts and optimizing investments. Joe inquires about Joe’s (guest) current financial obligations:

“I still have a student loan at 4.5% and an auto loan at 5.5%, as well as a mortgage.”
— Guest [08:24]

Nicole Lapin adds valuable insight into the 7% rule, emphasizing that if your debt interest rates exceed the average stock market return (historically 7%), investing those funds may not be advantageous:

“If you're investing, but your interest rate on your debt is more than 7%, you're making losses and not gains.”
— Nicole Lapin [08:34]

6. Building a Savings and Retirement Strategy [09:10 – 12:37]

Joe discusses the importance of establishing an emergency fund and enhancing retirement contributions. The guest reveals his current savings and retirement setup:

“I have a high-yield savings account with $1,500 at 4.1% and a 401k with a 3% contribution, planning to increase it to 5%.”
— Guest [09:19]

Joe advises increasing 401k contributions incrementally to boost retirement savings, highlighting the long-term benefits of compound interest:

“Even a small increase can make a massive difference. Automate everything... set it and forget it.”
— Joe [09:42]

7. Actionable Steps and Goal Setting [12:16 – 15:53]

To help Joe align his finances with his goals, the hosts recommend a revised budgeting approach and leveraging financial tools:

“Something like a 50, 10, 40 split... 50% necessities, 10% fun, 40% savings to catch up.”
— Joe [11:56]

They emphasize the importance of regular financial tracking and adjustments:

“Update the tracker quarterly so it's not a nightly thing. Once you see more progress, it could become monthly.”
— Joe [15:14]

Nicole underscores the importance of recognizing and admitting lifestyle creep as the first step toward financial recovery:

“Lifestyle creep does not stand a chance, especially when you recognize it. The first step to any recovery is admitting you have a problem.”
— Nicole Lapin [16:24]

8. Conclusion and Final Tips [15:53 – 17:42]

As the episode wraps up, Nicole and Joe provide final recommendations and resources to support listeners in managing lifestyle creep:

“You can take Straight to the bank if you're looking for tools to help. Bank of America has great budgeting features and saving tools in their app...”
— Nicole Lapin [16:29]

They encourage listeners to engage with the show by submitting financial questions and highlight Bank of America’s resources for further assistance.

Key Takeaways:

• Lifestyle Creep Awareness: Recognize how increased income can lead to proportional increases in expenses, hindering savings and wealth accumulation.
• Budgeting Framework: Implement the 50-30-20 rule to allocate income effectively, ensuring that raises contribute to savings and financial goals.
• Debt Management: Prioritize paying off high-interest debts before investing, adhering to the 7% rule for optimal financial growth.
• Savings Strategy: Build and maintain an emergency fund, and incrementally increase retirement contributions to benefit from compound interest.
• Automation and Tracking: Automate savings and budget allocation to streamline financial management and reduce the cognitive load of manual tracking.

By sharing personal experiences and expert advice, Nicole Lapin and Joe provide listeners with actionable strategies to prevent lifestyle creep and foster long-term financial well-being. Whether you’ve recently received a raise or are looking to optimize your current income, this episode offers valuable insights to help you build and sustain wealth effectively.

Transcript

[Nicole Lapin]

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[Joe]

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[Nicole Lapin]

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[Nicole Lapin]

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[Joe]

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[Nicole Lapin]

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[Joe]

I'm Nicole Lapin, the only financial expert. You don't need a dictionary to understand. It's time for some Money Rehab.

[Nicole Lapin]

Today, we're diving into one of the sneakiest villains in our financial world. Lifestyle creep or lifestyle inflation. You know the drill.

[Joe]

Your paycheck goes up, and suddenly so do your expenses. That bigger paycheck somehow feels like it's.

[Nicole Lapin]

Not stretching any further, and you're wondering.

[Joe]

Why you're still living paycheck to paycheck. Big problemo.

[Nicole Lapin]

But we don't do problemos. We do solutions here on Money Rehab, with the help of bank of America.

[Joe]

Whom I'm teaming up with for this episode.

[Nicole Lapin]

And today, we're not going at it alone. I've invited one of you, our fabulous listeners, to chat about a recent raise and how to dodge lifestyle creep like the financial pro they're about to become.

[Joe]

So let's bring in our guest, Joe. Well, Joe, welcome to Money Rehab.

[Guest]

Thank you for having me.

[Joe]

So you're here because our producer sent out an email about lifestyle creep, the phenomenon when we make more, but we don't keep more. And you responded, hello, that is me.

[Guest]

Absolutely.

[Joe]

That's right. Okay, so we're stoked to be talking about this. I think it's a really important topic. It's really common, and it's extremely figureoutable. So let's try to figure it out together. By definition, as you know, lifestyle creep means that over your career, you've been making more money, which is awesome, but you're not saving as much because the nice to haves become the need to have. So can you tell me when your last raise was, and how much was that for?

[Guest]

My last raise was last year, around August, and It was about 2,400.

[Joe]

Okay, awesome. Great. So my producer said that over the last seven years, you went from making 125 to 145. So overall, a 20k jump.

[Guest]

Yes.

[Joe]

But you haven't seen that 20k jump in your savings, right?

[Guest]

Not at all.

[Joe]

So let's get to the bottom of that. I think this is where a lot of people fall into the lifestyle creep trap. They think, oh, my gosh, 20k more. I can upgrade my apartment or splurge on that new car payment. Then there's also the inflation of it. All. Does that resonate with you?

[Guest]

Absolutely, it does.

[Joe]

So why do you think lifestyle creep is happening to you? And tell me how it's played out and how it's manifested.

[Guest]

So it happened. So once I got the job where I'm at right now in Orlando, you know, I started out at 125 and now I'm going to make 145 this year, you know, we were renting a town home in South Orlando and with the, the market and stuff the way it was, you know, the rent was the same as buying a house. So we were like, okay, let's buy a house, let's upgrade. And that's kind of where it started happening. The company I've been at, I've been at for seven years. And as everything, every year I got an increase. It's like, all right, we have a little bit more money. Let's okay, it's time to buy a new suit. Let's get annual passes for Disney. And you know, everything is just increasing every year as well. So not only is it lifestyle creep, it's also the inflation.

[Joe]

Yeah, it's.

[Nicole Lapin]

It's both.

[Joe]

It's price inflation and also lifestyle inflation. So double the inflation. Do you have a budget?

[Guest]

I. I have a tracker. I don't really do it the way I should be doing it. I do it for my company, but I won't do it for myself for some reason.

[Joe]

Why? Why do you think that is?

[Guest]

I get tired when I get home from work.

[Joe]

That makes sense. So this might be an important piece of the puzzle. I think if we break down, I like to think of it as a spending plan. So it might be a little bit different than the company budget that you make. You mentioned over email that after taxes and benefits or take home, pay is around 3,600 bucks a month.

[Guest]

Sorry, 3,600 per pay period. Sorry about that. So about 7,200amonth.

[Joe]

Okay. So a lot of people divide their budgets according to the 50, 30, 20 rule. Have you heard of that?

[Guest]

I've heard of it. I just don't remember what the 50, 30, 20 split was.

[Joe]

Yeah, so 50 for necessities, 30% for once, 20% for savings. It's a guideline. And everybody's going to be different. You know, if you don't have a car and you take public transportation, you might be able to move those benchmarks around. So it's just a guide to start out with. So the 20% for the end game is for retirement, paying down debt, investing all of that stuff. So when you Get a raise, you should take that net new money and apply the same budgeting rule. So it's basically that ideally, you don't use the whole thing for fun stuff. You can break it up, which makes it an overall win for you in the long run. So 50% of that going to necessities, 30% to wants, and at least 20% to savings or the end game. If we apply that budget to you, you would be 3,600 bucks monthly for necessities. You'd be about 2,100 bucks for fun stuff and 1400 bucks for savings or investing. Is that feel on track with what you're spending right now, or does that feel feasible?

[Guest]

I think it does. Yeah, it does.

[Joe]

So that's just, you know, a boilerplate outline. You can layer in personal financial goals on top of that outline, like timelines when you might need that money, and then break those sections down into smaller parts. You have some loans as well, right?

[Guest]

Yes, I do.

[Joe]

What kind of loans?

[Guest]

I still have a student loan and I have an auto loan.

[Joe]

Okay.

[Guest]

And a mortgage as well.

[Joe]

Okay. And do you know the interest rates on them?

[Guest]

Student loan, I think, is 4 and a half percent and the auto loan is 5 and a half.

[Joe]

Okay. Do you know about the 7% rule?

[Guest]

I do not.

[Nicole Lapin]

So historically, the stock market has returned an average of 7% year over year, according to Investopedia. It's not happening right at this very moment. And past performance, of course, does not guarantee future results, but that's a large historical average. So if you're investing, but your interest rate on your debt is more than 7%, you're making losses and not gains.

[Guest]

Sounds great.

[Joe]

Have you started investing at all?

[Guest]

I actually just signed up last week.

[Joe]

Excellent. How's that going?

[Guest]

Going pretty well so far.

[Joe]

Okay. And do you have an emergency fund?

[Guest]

Not a big one right now. It's. It's pretty small. About 1500.

[Joe]

Okay. And do you have a retirement account set up?

[Guest]

I have a 401k.

[Joe]

So. Great, your 401k contributions are coming out, you know, before you pay taxes. Do you have a match for. For that 401k?

[Guest]

We do.

[Joe]

Have you ever bumped up your 401k contribution? Are you putting the max in there?

[Guest]

I am not putting the max, but I did bump it up a little this year. It's only 3% right now.

[Joe]

Okay. And what are you thinking about bumping.

[Guest]

It up to five.

[Joe]

Okay. I mean, if we think about it as we get older, it makes sense to bump up our 401k contributions a little bit more as we get closer to retirement. So if you can bump it up, you know, as much as possible, even a percent or half a percent, it might not seem like a lot right now, but over time, even a small increase can make a massive difference. And you know, I think the key here is to automate everything. So you set it and forget it. When you get a raise that hits your account, it's already going into savings and debt payments and fun money. It's really about setting it up once, once a year and then checking it again to see if it still makes sense. And that way you don't even have to think about it. How does that sound?

[Guest]

Sounds great.

[Joe]

Okay, so let's use this framework and.

[Nicole Lapin]

Talk about some of your long term financial goals.

[Joe]

So with the 50, 30, 20 framework, if we like that, again, all movable, and if we see how your allocation fits into that framework, sounds like it's feasible, sounds like it makes sense. And if you take a look at when you want to retire and then add up how much you'd have by that retirement age, you would be saving fourteen hundred dollars a month. And you know your 401k is invested. So the goal for that is to grow over time. If you see that after adding that, you wouldn't have saved what you want to retire on, then you might want to change your allocation for your general spending plan, the euphemism for budget, to try and make your goals. So I'm sorry to give you homework, but have you ever played with the compound interest or retirement calculator?

[Guest]

Yes, I have.

[Joe]

Oh, have you done it recently?

[Guest]

I think it was probably a little bit towards the end of last year. I think I used it.

[Joe]

And how did it look?

[Guest]

Short. Okay. I was falling a little short.

[Joe]

Okay. And was that when you decided to bump it up or was that after you bumped it up?

[Guest]

Oh, I bumped up from 2 to 3 at that point. And then when I get my next increase, I was going to increase it to the five.

[Joe]

Okay, so would something like a 50, 10, 40 feel feasible to you at this point where, you know, 50% goes to the necessities, but then, you know, 10% to the fun stuff and then 40% to savings to try and catch up a little bit?

[Guest]

I think I need to find a way to make that work because, you know, at this point in my life, you know, I, I need to play a little catch up.

[Joe]

Yeah. And I think where you put your savings is important too. Where do you have that 1500 in savings right now?

[Guest]

I have it In a high yield savings account.

[Joe]

Okay. And do you know the percent that that's getting you?

[Guest]

4.1.

[Joe]

Okay, that's. That's not bad. And how long have you been in a high yield savings account? So one of the easiest things we can do to bump up the interest.

[Guest]

Probably mid last year, I opened that up.

[Joe]

Okay. And so if we take a look at some of the interest that you're getting in your high yield savings account, do you feel like seeing that add up is making you more excited about.

[Nicole Lapin]

Making more in interest?

[Joe]

Because once you are making more, either through passive income or an increase in salary, then some of these percentages can change. But I think having a jumping off point is important. But first, sort of getting in that zone is important to have just an overall idea of where this money is going and you can assess from there. How does that sound?

[Guest]

It sounds great. It makes. Definitely makes sense.

[Joe]

Okay. How are you feeling? I feel like I've been telling you a lot of homework, which I don't want to give you, but I mean that your future self will thank you.

[Guest]

Oh, absolutely. I mean, if you want change, you have to work for it. You have to do a little homework.

[Joe]

You know, we talked about a bunch of these numbers and feeling short on retirement, that that might feel stressful. It's a stressful time in the market. When you think about this overall spending plan, does it make you stressed or does it make you hopeful? Hopefully a little bit of both. Okay, good. Do you have any questions for me?

[Guest]

No, I don't.

[Joe]

Okay. So what do you think the next plan of action is for you?

[Guest]

Well, spending plan first, I think get that down and then, you know, just kind of see exactly where I'm at and then start bumping up my 401k and kicking more into the high yield savings account.

[Joe]

Okay, that sounds like a great plan. And then I think just understanding where some of the extras are going, the yearly pass to Disney, the whatever else you added in, just getting an, like an audit of what is going on there might be helpful to prioritize.

[Guest]

Absolutely.

[Joe]

And I know it sounds like captain Obvious, but you know, to make a spending plan, it's designed to overall help you increase that savings contributions. And listen, I get it. You know, when you're getting home from work, you feel tired. Who wants to update a tracker at the end of looking at trackers all day long? But do you think if you just updated the tracker quarterly so it's not a nightly thing, that could be something you could stick to?

[Guest]

Absolutely. I think once I see more of the progress than the quarterly. It could become monthly.

[Joe]

Yep. I mean, a lot of times it's, it's going to be boring. I'm not going to lie to you, but I do like my money to be boring. No need to have the excitement that you would get at Disney World with your finances. You want it slow, steady and super boring. But you know, you'll see progress and the gap between what you want for retirement and what you're doing right now is going to start closing. And that's going to feel really good. And it won't take energy away from you. At the end of the day, it will probably feel energizing.

[Guest]

Something to look forward to, actually.

[Joe]

Okay, good. So I think with these steps, you're building a really solid foundation for your financial future and lifestyle creepy does not stand a chance, especially when you recognize it. It usually creeps away. But the first step to any recovery is admitting you have a problem and the only problem you can't fix is when you don't admit you have. So I think this is a big step.

[Guest]

Absolutely.

[Nicole Lapin]

Thank you for today's tip. You can take Straight to the bank if you're looking for tools to help.

[Joe]

You stay on track, check out bank of America.

[Nicole Lapin]

They have great budgeting features and saving tools in their app so that you can automate your goals just like we.

[Joe]

Talk talked about today.

[Nicole Lapin]

Plus you can also track your spending in real time, which is a huge.

[Joe]

Huge help when you're trying to keep lifestyle creep at bay.

[Nicole Lapin]

Learn more with bank of America, where you can get access to tools and solutions. To view your bank of America banking account online in one place. To learn more, go to b of a.com financialnextsteps which I have linked in the show notes. The views and advice expressed by Money News Network are independent and not endorsed.

[Joe]

By bank of America Corp.

[Nicole Lapin]

Investing involves risk. The information here is not intended to be either a specific offer to sell or provide or a specific recommendation to buy any particular product or service. Brokerage services are provided by Merrill Lynch, Pierce, Fenner and Smith Incorporated. A registered broker, dealer, registered investment advisor member SIPIC and a wholly owned subsidiary of bank of America Corporation. Bank of America and a member FDIC.

[Joe]

Money Rehab is a production of Money News Network. I'm your host, Nicole Lapin. Money Rehab's executive producer is Morgan Lavoy.

[Nicole Lapin]

Our researcher is Emily Holmes.

[Joe]

Do you need some Money Rehab? And let's be honest, we all do. So email us your money questions moneyrehaboneynewsnetwork.com to potentially have your questions answered on the show or even have a one on one intervention with me. And follow us on Instagramoneynews and TikTokoneyNewsnetwork for exclusive video content. And lastly, thank you. No, seriously, thank you. Thank you for listening and for investing in yourself, which is the most important investment you can make.