Money Rehab with Nicole Lapin - “Don’t Be a (Lifestyle) Creep! How to Use Your Raise to Build Wealth”

Episode Date: May 15, 2025

A raise is cause for celebration, but if you’re not careful, it can also lead to lifestyle creep—a sneaky culprit that keeps you living paycheck to paycheck, even with a bigger paycheck. Today, Nicole helps a Money Rehabber design a game plan to maximize their raise, pay down debt, and hit their financial goals without falling into the lifestyle creep trap. If you’re ready to automate your budget, boost your savings, and stay on track, Bank of America has the tools to help. Learn more at bofa.com/FinancialNextSteps.

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Get started today. I'm Nicole Lapin, the only financial expert. You don't need a dictionary to understand it's time for some money rehab. Today we're diving into one of the sneakiest villains in our financial world, lifestyle creep or lifestyle inflation. You know the drill. 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. But we don't do problemos. We do solutions

here on Money Rehab with the help of Bank of America, whom I'm teaming up with for this episode. 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. So let's bring in our guest, Joe. Well, Joe, welcome to Money Rehab. Thank you for having me. 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. Absolutely. 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 figure out a poll. 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 have has become the need to have. So can you tell me when your last raise was and how much was that for? My last raise was last year around August and it was about 2400. Okay. Awesome. Great.

So my producer said that over the last seven years you went from making 125 to 145. So overall a 20 K jump. Yes. But you haven't seen that 20 K jump in your savings, right? No, not at all. 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? Absolutely, it does. So why do you think lifestyle creep is happening to you? And tell me how it's played out and how it's manifested. 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 market and stuff the way it was, 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 for seven years and as everything, every year I got an increase, it's like, all right, we have a little bit more money. Okay, it's

time to buy a new suit. Let's get annual passes for Disney. And everything is just increasing every year as well. So not only is that lifestyle a creep, it's also the inflation. Yeah, it's both. It's price inflation and also lifestyle inflation. So double the inflation. Do you have a budget? 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.

Why do you think that is? I get tired while I get home from work. 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 3600 bucks a month. Is that right? Sorry, 3600 per pay period. Sorry about that. So about 7200 a month.

Okay. So a lot of people divide their budgets according to the 50-30-20 rule. Have you heard of that? I've heard of it. I just don't remember what the 50-30-20 split was. Yeah, so 50 for necessities, 30% for wants, 20% for savings. It's a guideline and everybody is 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 role. 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 monthly for necessities. You'd be about $2,100 for fun stuff and $1,400 for savings for investing. Does that feel on track with what you're spending right now? Or does that feel feasible? I think it does. Yeah, it does. So that's just 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? Yes, I do. What kind of loans? I still have a student loan and I have an auto loan and a mortgage as well. And do you know the interest rates on them? Student loan I think is four and a half percent and the auto loan is five and a half. Do you know about the seven percent rule? I do not. 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. Sounds great. Have you started investing at all? I actually just signed up last week. Excellent.

How's that going? Going pretty well so far. Okay. Do you have an emergency fund? Not a big one. Right now, it's pretty small, about $1,500. And do you have a retirement account set up? I have a 401k.

So great. Your 401k contributions are coming out before you pay taxes. Do you have a match for that 401k? We do. Have you ever bumped up your 401k contribution? Are you putting the max in there? I am not putting the max, but I did bump it up a little this year. It's only 3% right now. Okay and what are you thinking about bumping it up to?

Five. 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 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 fund 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? Sounds great. Okay. So let's use this framework and talk about some of your long-term financial goals. 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, it sounds like it's feasible. It 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 $1,400 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 wanna 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 a compound interest

or retirement calculator? Yes I have. Oh have you done it recently? I think it was probably a little bit like a little towards the end of last year. I think I used it. And how did it look? Short. Okay. I was falling a little short. Okay. And was that when you decided to bump it up or was that after you bumped it up? Oh, I bumped up from two to three at that point. And then when I get my next increase, I was going to increase it to the five. Okay. So would something like a 50, 10, 40 feel feasible to you at this point where 50% goes to the necessities, but then 10% to the fun stuff and then 40% to savings to try and catch up a little bit? I think I need to find a way to make that work because at this point in my life, I need

to play a little catch up. Yeah. And I think where your savings is important too. Where do you have that 1500 in savings right now? I have it in a high yield savings account. Okay. And do you know the percent that that's getting you? 4.1. Okay. 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. Probably mid last year I opened that up. in a high-yield savings account. So one of the easiest things we can do to bump up the interest. Probably mid last year I opened that up. 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 making more in interest? 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? It sounds great. It definitely makes sense. Okay. How are you feeling?

I feel like I've been telling you a lot of homework and which I don't want to give you, but I think that your future self will thank you. Oh, absolutely. I mean, if you want change, you have to work for it. You have to do a little homework. 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?

Hopeful, definitely. A little bit about. Okay, good. Do you have any questions for me? No, I don't. Okay. So what do you think the next plan of action is for you? 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.

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 audit of what is going on there might be helpful to prioritize. Absolutely. 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? Absolutely. I think once I see more of the progress, then the quarterly could become monthly. Yep.

I mean, a lot of times 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 gonna feel really good and it won't take energy away from you at the end of the day. It will probably feel energizing. Something to look forward to actually. Okay good so I think with these steps you're

building a really solid foundation for your financial future and lifestyle creep 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 we can't fix is when you don't admit you have. So I think this is a big step. Absolutely, thank you. For today's tip, you can take straight to the bank. If you're looking for tools to help you stay on track, check out Bank of America.

They have great budgeting features and saving tools in their app so that you can automate your goals just like we talked about today. Plus you can also track your spending in real time, which is a huge, huge help when you're trying to keep lifestyle creep at bay. 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 bofa.com slash financial next steps which I have linked in the show notes. The views and advice expressed by Money News Network are independent and not endorsed by Bank of America Corp. 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. Brokered services are provided by Mara Lynch, Pierce, Fenner & Smith, Inc., a registered broker dealer, registered investment advisor, member SIPC, and a wholly owned subsidiary of Bank of America Corporation, Bank of America, and a member

of FDIC. Money Rehab is a production of Money News Network. I'm your host, Nicole Lapin. Money Rehab's executive producer is Morgan Lavoie. Our researcher is Emily Holmes. Do you need some Money Rehab? And let's be honest, we all do. So email us your money questions, moneyrehab at moneynewsnetwork.com to potentially have

your questions answered on the show or even have a one-on-one intervention with me. And follow us on Instagram at MoneyNews and TikTok at MoneyNewsNetwork 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.