| Here's why getting a raise can actually hurt your retirement | | |  | WED, JAN 29, 2020 | | | | Riddle me this: How can getting a raise hurt your financial life?
Answer: When you allow lifestyle creep to sneak into your world.
The basic concept of lifestyle creep is that as your discretionary income goes up (you get a raise), your standard of living goes up with it. And we all know that living above our means is a recipe for financial disaster. Yet, we all need to be reminded from time to time.
When you begin earning more, it's natural to want to treat yourself. So, it's easy to justify spending a little extra money. But this feeling of deserving more can escalate quickly and it prevents you from building an emergency fund or properly saving for your life goals and that includes retirement. To that point, research shows Americans typically don't change their savings rates after receiving a raise.
I get it. After years of sacrificing and eating ramen noodles for dinner a few times a week, getting a raise or a bonus can feel like you truly hit the lottery. With lifestyle creep, discretionary spending becomes perceived as a necessity versus a want.
It's very tempting to spend more money now that your paychecks are fatter. It's also important not to squander your new gains on short-sighted purchases. Don't blow all of your hard-earned cash and end up in debt. Remain focused, stay within your budget, live within your means and keep that lifestyle creep in check.
For more cool stuff like this, please follow me on Twitter @jimpavia and check out CNBC's Financial Advisor Hub and CNBC + Acorns Invest in You: Ready. Set. Grow.
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