Hey there! It's Talk About Money Tuesday, your favorite day of the week!🤑

If you've set goals for this year, there's a good chance that at least one of them is, "Find a way to earn more money." Maybe it's negotiating a raise, picking up a side hustle, or applying for a better-paying job — all solid steps to bringing in more cash.

But although earning more money is a worthy goal, it's only half the story. Here's the thing: Earning more doesn't automatically make life easier. Without the right approach, more income just leads to more spending. And more spending can trigger financial stress.

A game-changing lesson for young people is learning that extra income doesn't have to mean extra spending. Let's get into how to help them understand the difference between earning and lifestyle so they can avoid feeling like money is always tight even when they have more of it.

Money Stat

$500,000+

Among the many people living paycheck to paycheck: workers earning more than $500,000 a year. A recent report from Goldman Sachs revealed that 40% of earners at that level are struggling to pay their bills.

The culprit? Higher costs for everyday items plus what's known as lifestyle creep.

Lifestyle creep (sometimes called lifestyle inflation) is when you earn more money and spend it on things that were previously out of reach — such as fancy cars, a bigger house, or lavish vacations. Using extra income to counter actual inflation or other unexpected rate hikes (say a higher electricity bill) doesn't count.

One way for someone fresh off a raise to skip contributing to lifestyle creep is to automatically route the extra income into a high-yield savings account or investment account. Set it and forget it is the way to go!

Get in the Zone

Money skill: What to do with extra money from a raise or a side hustle

Why it matters: Learning how to manage extra income early teaches young people they don't automatically have to spend more money when they make more money.

Try this: When you get a raise or bring in side hustle income, maybe you're set to put some in savings, some in an investment account, and some toward other goals, before turning to "nice-to-have" purchases. Talk to your teen or college student about how you're planning to divide that extra income.

Encourage young people to do the same with an allowance increase or a raise from their employer, which builds a habit of "pay yourself first." This will give them practice prioritizing financial security over lifestyle creep.

The Language of Money

Use these easy-to-understand definitions to start the conversation with your kid or teen about keeping spending steady when income rises.

💰📈 Lifestyle creep: When your spending sneaks up as your income rises, so bigger paychecks don't actually give you more financial freedom

💲🏢 Earnings: The money you bring in from work or side hustles

🏦🚨 Reserves: Money you set aside for savings or emergencies

🛍️🛫 Outflows: The money that goes out when you buy things or pay for experiences

Looking for more youth-friendly personal finance terms to share with kids and teens? ​​Download my Language of Money freebie. ​

Money Talks

Here are some quick ways to talking about earnings vs. lifestyle to young people:

➡️ For younger kids — "I'm giving you more allowance! You could buy more toys or treats because you have more money now, or you could save more money to buy something really special. What could you save up for?"

➡️ For teens and college students — "Before using that raise you got at work (or bigger allowance) to upgrade your snacks or tech, ask yourself: If my spending grows every time my income goes up, will I really have more freedom or just more things? What do you think about putting some of your money toward savings or investing instead?"

These conversations can plant the seed that maintaining a steady lifestyle as income increases can reduce future money stress.

Loose Change

💸 An actor from the popular show The White Lotus recently spoke honestly about his spending habits. He fell victim to lifestyle creep.

Thanks for reading! If you know someone who cares about youth financial literacy, share this newsletter with them. And if this newsletter was forwarded to you, please subscribe ​here​.

'Til next time,

Audrey
​Founder/Certified Financial Education Instructor​
The FinLit Zone

600 1st Ave, Ste 330 PMB 92768, Seattle, WA 98104-2246
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