Well, that’s a question I’m really happy you asked! Let me tell you what my uncle used to tell me when I worked for him many years ago. He used to say that work expands to fill the time allotted to it. In other words, if you give an employee an hour to do a job they have always been able to do in fifteen minutes, they will take an hour to do it if you give them an hour to do it.
This beautifully illustrates the concept of lifestyle inflation.
In a nutshell, lifestyle inflation is what many people get caught in. They live comfortably on their income, but then one day something happens, such as a big bonus, raise or a higher paying job, and they decide that since they’ve moved up in the world financially, they ought to buy a better car, dress a little better, take bigger and better vacations, get a bigger mortgage, etc. In other words, as income increases, so does debt. In the end, the increase in income has done nothing to get them any closer to financial independence.
A friend’s uncle owned a resort along the shoreline path near a lakeside village. He was a pleasant man with an interesting Indian accent who would often be out doing maintenance work with his sons. He always gave a friendly wave and said hello if he spotted you.
I was curious about how he was able to afford such a nice resort, even though he never appeared to be a wealthy man. One day I asked him about it.
He explained that when he came to Canada, he worked for a small wage that he spent on food, housing, and necessary expenses for his family. He and his family always had everything they needed on his earned wage.
Then, when his employer eventually noticed that he was a conscientious, skilled and hard worker, he gave him a substantial raise.
The man went on to tell her that the family expenses were still the same, so they continued to live quite comfortably on what he had been making, and put the rest in the bank. That is the way to handle things when you start earning more, and is a sure path to financial independence and, quite possibly, to wealth.