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You've heard of inflation, it's the general rise in prices of goods and services over a period of time (according to Wikipedia). Because of inflation, you get less bang for your dollar. It's like how on Austin Powers, Dr. Evil asked for a MIIIIILLLLLLIOOOON dollars for compensation, but a million dollars is nothing nowadays. Good thing our salaries go up too, in accordance.
Or is it?
I can't argue that having a larger salary is a bad thing (because of course, it is a good good thing). However, if you get a raise, or if you start earning the big bucks (over $100K a year for example), you have to be careful that lifestyle inflation doesn't catch up to you.
Lifestyle Inflation (according to moi) is when your lifestyle (your house, your car, your trips, your eating out expenses) catches up and maybe exceeds your salary in order to “keep up with the jones' ” or to show the world that you are indeed a wealthy individual because of your job and your higher pay.
You may think that some doctors or lawyers must be well-to-do, and they very well may be, but at the same time, they might not be. I was driving to work one day, and saw a lawyer in a fancy car with the license plate “LTG8TR”. He probably was well to do, but he probably also had high expenses to pay. He probably had a lot of debt, too. Mortgage debt, car loans, you name it (if you think I'm being ridiculous by assuming he had a lot of debt, I often think of this when I see people driving fancy cars to make myself feel better- coping mechanism, you can call it).
If your paycheque upgrades, you should try your very best not to upgrade your expenses too.
I have been getting a small raise every year, but I still budget for it as if it were last year. So the extra $100 every paycheque doesn't really exist in my budgeting-eyes. It's best to pretend that you're “now making X amount of money per year”. Again, it comes down to what your values are- what you really want to spend your money on and what is superfluous.
As we move into our highest paying salary years (our 30's and 40's and 50's), we do get instant lifestyle inflation, be it a home purchase, a baby (they are $$$!), saving for children's post-secondary education and so on. I think it's important to get good spending habits now (our 20's) to carry us forth into later years, when spending loads of money because you have money is easier to do.
Have you resisted the temptation of lifestyle inflation? What have you done for yourself to ensure that you don't spend more…now that you're making more?
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