Finance Gurus Like Roy McDonald of One Life on Lifestyle Inflation

Congratulations, you've finally been promoted! You not only have bigger responsibilities and a roomier office, but a heftier paycheck as well. However, the thought process for many recently-promoted employees isn't, “Wow, I can contribute more towards my savings account now!” so much as “I can finally put a down payment on a car!”

Financial gurus like Roy McDonald from One Life will tell you that the more people earn, the higher their expenses seem to be. This is often called “lifestyle inflation”, something you might have first encountered when transitioning from your ramen-eating college days to your first full-time job. This is a natural reaction, of course, but now that you have more money, why continue to scrimp on things you can actually afford?

That said, lifestyle inflation has the tendency to make luxuries seem like necessities. As you bring in more money, you become more confident about purchasing things that were once out of reach. For example, you may have been perfectly fine with your feature phone until you got a raise or a promotion, at which point a shiny new smart phone suddenly seemed irresistible.

If you're not conscious of lifestyle inflation, you'll eventually spend more than you earn, and before you know it you're back to pinching pennies to make ends meet. According to financial guru Roy McDonald of One Life, you should earmark and invest at least 10% of your income towards a wealth account that you can use for your future. Doing so allows you to splurge on yourself without jeopardizing your finances.

This is especially true since life is often unpredictable. You might be making good money now, but who's to say a financial crisis won't hit and you'll find yourself demoted—or worse, laid off? What if someone in your family gets seriously ill, or a natural disaster damages your home?

In light of this, try to save nine to twelve months' worth of your salary to prepare for such events. When your paycheck arrives, pay yourself first by deducting that 10% slice and stowing it away.

Whether it's a raise or a promotion, a bigger paycheck is always welcome. At the end of the day though, it's not how much money you have but how you use it.