Let’s talk a little about budgets and income.
Your budget (and you do have one, right?) consists of:
In a zero-based budget, no income goes unaccounted for.
[ Income – (Expenses + Savings) = 0 ]
Let’s say you’re cruising along with your nice zero-based budget, and suddenly your income goes up? Let’s say you get a raise or promotion at work, or maybe you take a part-time job to make a few extra bucks. Could this actually be a potential problem?
But that’s a good thing! Well, sure it is, and congratulations! For smart people, things won’t change too much. The extra money will mean extra savings, a bigger emergency fund, a thicker cushion against the slings and arrows of life.
For others, however, that extra cash will represent a potential lifestyle upgrade. It’ll go directly into the expenses (new car, nicer home, more stuff, etc) portion of the budget, and the savings will stagnate. The frugal instincts may weaken, and soon it will feel as if the raise never even happened.
We see this a lot with recent college graduates in their first real jobs. They’ve been living like poor students for the past four years, and become intoxicated by their first decent paychecks. And so they jump right into a spendy lifestyle they really have no business having…. at least not until the student loans are paid.
Now, what about the folks lurching through life without a budget or any sort of spending controls? That extra money will fix everything, right? Not necessarily. Habits don’t change that easily. If your spending is out of control at $20,000 a year, it will probably be that much more out of control at $30,000.
The smart person will maintain the budget, increase the savings, and keep moving along according to their goals… you do have specific goals, right?