Getting a promotion is something to celebrate, but changing how you live to match your new income can be bad. To help avoid that, spend time with friends that live on a similar budget.
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Lifestyle inflation is a trap many fall into when they get a boost in income, but it’s best avoided, as it can be detrimental to your finances. Jacqueline Curtis at financial blog Money Crashers explains why you might be tempted to spend all of your newly earned income:
For example, consider a night out: If your friends live an inflated lifestyle, you might be enticed to go to a pricier restaurant, order expensive drinks, or even pick up the tab. If your friends live more modestly, on the other hand, and you match your behaviour to theirs, you’re likely to spend less.
Instead of spending all your money to keep up with your friends, you could be putting that extra cash away in savings or toward something you’ve always wanted. It’s not just activities that can make you feel like spending more either. You can be influenced by the items they own and feel like you need a fancy new car so you don’t feel left out. Stick with your close friends of course, but be wary of making new ones who might make you open your wallet a little more than you should.