After an Increase in Income

Whether you are an employee or an entrepreneur seeing an increase in your income, you must avoid inflating your lifestyle to match the income.

Most of us learn that when our income grows, we can afford more. We can afford a nicer car, a bigger TV, or more extravagant vacations.

We learn to upgrade our lifestyle as our income grows.

While it's important to reward yourself for your hard work, you should also be careful not to get carried away.

What should you do with the extra money you make?

Increasing Savings

If you are living sufficiently comfortably with your income, an increase in your income should then be reflected in your savings. The increase you receive is money you didn't have or need before, which means you may also not need it now.

Increasing the percentage of overall savings can give you peace of mind for a rainy day.

Decreasing Debt

If you are in a position with significant amounts of debt, it's important to use that extra money to decrease debt. Debt for things that don't give you an income, i.e., not assets, usually eats up a lot of your extra cash.

The faster you get rid of them, the more free you will be to increase your savings.

Increase Investments

When you get more money, you should see it as an opportunity to invest more. Investing in assets that pay you a return later down the road also serves as a security blanket for a rainy day.

It's excellent for your financial health and future as your ability to work decreases with age.

So, the next time you receive a salary increase or see significant revenue growth, remember that it's an opportunity to secure your financial future, not an invitation to show off.

The challenge

Reflect on what you did with the last increase in revenue you received. Did it go towards creating a more financially stable future, or did your lifestyle inflation use it all up?