Money Rehab with Nicole Lapin
“Don’t Be a (Lifestyle) Creep! How to Use Your Raise to Build Wealth”
Thu, 15 May 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.
Chapter 1: Who are the speakers and what is the podcast about?
I'm Nicole Lappin, 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.
Chapter 2: What is lifestyle creep and how does it affect your finances?
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 figureoutable. Let's try to figure it out together.
By definition, as you know, lifestyle group 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 $2,400. Okay. Awesome.
Great. So my producer said that over the last seven years, you went from making $125,000 to $145,000. So overall a $20,000 jump. Yes. But you haven't seen that $20,000 jump in your savings, right? 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.
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Chapter 3: How has Joe's salary raise led to lifestyle creep?
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 when 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 $3,600 a month.
Is that right? Sorry, $3,600 per pay period. Sorry about that. So about $7,200 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'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 things. 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.
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Chapter 4: What budgeting methods can help control lifestyle creep?
Okay. 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.
Okay. Do you know about the 7% 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.
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Chapter 5: What is the 50-30-20 budgeting rule and how can it be applied?
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.
And do you have an emergency fund?
Not a big one right now. It's, it's pretty small, about 1500. Okay.
And do you have a retirement account set up?
I have a 401k.
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Chapter 6: How should you allocate your raise to avoid lifestyle inflation?
So great. Your 401k contributions are coming out, you know, 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?
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 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.
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Chapter 7: What debts does Joe have and how do their interest rates impact his finances?
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, 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 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 yes i have oh have you done it recently
I think it was probably a little towards the end of last year. I think I used it.
And how did it look?
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Chapter 8: What is the 7% rule and why is it important for investing vs debt repayment?
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, 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.
I think I need to find a way to make that work because, you know, at this point in my life, you know, I need to play a little catch up.
Yeah. And I think where you put your savings is important too. Where do you have that 1500 in savings right now?
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Chapter 9: What is Joe’s current status on investing, emergency fund, and retirement accounts?
I have it in a high yield savings account.
4.1.
Okay.
That's not bad. And how long have you been in a high yield savings account? It's one of the easiest things we can do to bump up the interest.
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 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. What 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, which I don't want to give you, but I think that your future self will thank you.
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