142: You Just Got a Raise! Don't Let Lifestyle Creep Steal It

0:00Hey, everyone, and welcome back to the Rich Habits Podcast, a top 10 business podcast on Spotify, brought to you by Public.com. By the end of this episode, you'll know exactly how to turn your next raise into actual wealth instead of just more monthly expenses. My name is Austin Hankwitz, and I'm joined by my co-host, Robert Croak. Robert is a seasoned entrepreneur with lifetime revenues of over$300 million, and I'm a multimillionaire in my late 20s with a background in finance and economics. As the show name might suggest, every episode, we talk about rich habits as they relate to business, finance, and mindset.

0:34So Robert, what are we going to be specifically talking about in today's episode? It's going to be a fun one. In this episode of the Rich Habits Podcast, we're talking about something that happens to almost everyone. You get a raise, you're excited for about two weeks, and then somehow you're still living paycheck to paycheck. Your bank account doesn't look any different. You're not saving more. You're not investing more. The money just disappeared. This phenomenon is called lifestyle creep, and it's one of the biggest wealth killers out there. It's why people making more than$200 ,000 a year can feel just as broke as people making it on$50 ,000 a year.

1:09It's why high earners are drowning in debt, and it's why most people never build real wealth, even as their income goes up year over year. Here's what happens. You get a$10 ,000 raise. That's an extra$833 a month before taxes, maybe$600 after taxes. And you tell yourself, I'm going to save it. I'm going to invest this money. you're finally going to build that emergency fund. But guess what happens? You move into a nicer apartment, just$300 more a month, no big deal. You update your car lease. You start eating out more because I deserve it. You get a few more subscriptions and suddenly that entire raise is gone.

1:48You're making more money, but you're not getting any wealthier. And the worst part about it all, Robert, is most people don't even realize it's happening. The lifestyle creep is so gradual, so subtle, that by the time you realize what actually happened, you're now locked into these new expenses. You can't go back to that cheaper apartment. You can't downgrade your car without feeling like a failure. You're truly stuck in your circumstances. So Robert and I are going to break down in this episode, one, exactly why this happens, two, how to spot it before it steals your raise, And three, what you can do right now if you just got a pay increase to actually use it to build wealth.

2:28Raises should build wealth, not just fund a slightly nicer lifestyle. But before we jump into those specific points, it's really important that everyone understands this reality. Investing toward your financial future is the only way you will ever be able to stop trading time for money in your 9-to-5 job. Which means if you want to retire one day, you need a nest egg that's growing for you over time. And the easiest way anyone can begin investing towards their future is on public.com. They make it incredibly simple to build a multi-asset portfolio, including ETFs, stocks, bonds, crypto options, and more.

3:02They also offer access to industry-leading yields, up to 3.8 % APY for your emergency fund. And for a limited time, you can earn a 1 % match on all IRA deposits, IRA transfers, and 401k rollovers, which is a free$1 ,000 for every$100 ,000 that you roll into their platform. So if you got that old 401k on an old stinky broker, roll it over and get your 1 % match. Fund your account in five minutes or less by heading to public.com front slash rich habits to claim your 1 % match today. Paid for by public investing. Full disclosures in the podcast description. All right, Robert, let's now talk about why every raise feels like it disappears.

3:41First and foremost, it's not just you. This is a psychological trap that catches almost everyone. When you get a raise, your brain does something interesting. It recalibrates your baseline. So before the raise, for example, you're making 60k a year and you make it work. It's tight, but you make it work. Then you get that$10 ,000 bump to$70 ,000 a year, and that$10 ,000 begins to feel like free money. But you start making a few small upgrades. Nothing crazy, but maybe your apartment, you move apartments and you go from a$1 ,200 a month payment to$1 ,500 because you can afford it now. You trade in that 10-year-old car for a newer one and sign up for a$400 a month payment.

4:19You start buying organic groceries instead of regular ones. Maybe you sign up for that gym membership instead of continually working out at home or outdoors with your friends. You get the premium streaming services instead of just the basic ones. Each decision feels small. It feels justified. But here's what you're not seeing. Those small decisions add up to exactly the amount of your raise, if not more. So now your baseline in your life is$70 ,000. And maybe it feels like you're living a little bit better in the moment, but in actuality, you're just spending more and not building wealth along the way.

4:53And Austin, here's the kicker. Once people upgrade their lifestyle, it's incredibly hard to downgrade. Psychologists call this the hedonic treadmill. You adapt to your new lifestyle really quickly, and then you need the next upgrade to even feel that same boost, and it's never enough. You're always chasing the next level, and this is a vicious cycle that will never end unless you end it. Most people think, if I just made more money, all my problems will go away. But the reality is, if you don't fix your spending habits, more money just means more spending. I remember back in my 20s when I was like, man, if I could just make$100 ,000, life would be great.

5:31As soon as you make that$100 ,000, you're like, if I could just make$200 ,000, it's a vicious cycle that never ends and it's up to you to end it. So let's get into our three categories of where lifestyle creep shows up so you can identify where you're discarding your extra cash, making it easier for you to stop it. The first category is the biggest for a lot of people and that's housing. You get a raise and suddenly you're looking for that nicer apartment or you're thinking about that bigger home. I'm not saying you should live in your first apartment forever, but housing is usually your biggest expense.

6:06The average household right now spends roughly$25 ,436 per year on housing, which amounts to about 32.9 % of the average person's total annual expenses. So the smart move is to keep the same housing cost, or if you absolutely have to upgrade, limit the increase to only 20 to 30 % of what your raise was, right? So not all of your raise, but a portion of your raise. Now, the second big category of lifestyle creep, Robert, is transportation. You get a raise and suddenly your car feels old, right? It doesn't have that cool touchscreen. Maybe your AC is not as cool as you thought it would be. Whatever.

6:46You start thinking about upgrading. So maybe you've got this paid off car and you're going to trade it in. You're going to go get the lease. Maybe you go from a Honda or an Acura to a BMW, right? You think you can justify it. Transportation is a wealth killer if you're not careful. Between your car payments, your insurance, the gas, the maintenance, the average American is spending north of$12 ,300 a year on this category. So if you upgrade your car every time you get a raise, you're throwing money away. Not to mention these are depreciating assets, Robert. Yeah, I talk about this all the time and I do a lot of content about this because you drive through all these beautiful neighborhoods and you see all these driveways lined up with the new Jeep and the new BMW.

7:28And then on top of that, you just really all just manifest into this living beyond your mean situation in lifestyle creep. And you don't always need the latest BMW, the latest iPhone. You don't need all this. You need to build wealth so you have financial freedom later on. So this third category is the silent killer, and that's your daily habits. This one is sneaky because it doesn't feel big, but it adds up fast. You get a raise and suddenly you're getting coffee at Starbucks every morning instead of making it at home. You're ordering lunch instead of packing it. You're using DoorDash three to four times a week, and you're buying the premium versions of things instead of the basic ones.

8:08I'm sure you've experienced this. These expenses don't feel like luxuries after a while, and they become the new normal. This is the key here. You get so used to it, you're like, oh, I have 11 Stanley water bottles now. I've got 30 pair of Lululemons, 20 pairs of Nikes. That's the new normal. And you forget that you used to pack your lunch, you used to make your own coffee at home from time to time. And once you upgrade, you rarely ever turn back. This is where most people lose the battle. It's not just one purchase. It's the hundred small purchases that add up to thousands of dollars a year. You know, Robert, I didn't realize, and again, this is me kind of reflecting upon a lot of the spending that I was doing in my early to mid 20s.

8:49I was religious about using the Apple card because they had a cool app to track the categories and stuff. And I remember because I did the opportunity cost analysis of like, okay, last year I spent about$14 ,000 as just an example on not necessary things, right? And then I'm looking at it, I'm like, if I just put that$14 ,000 into Bitcoin at the time, that was maybe a 20 or 30 ,000 Bitcoin or in the S &P 500 at the time, which was a$300 or$400 VOO or, you know, whatever it was, you just kind of, you begin to not only recognize that a lot of the little bits and pieces of your life that you're inflating, they're not intentional spending.

9:29so you don't really get to feel like you are actually benefiting from this raise. You're just kind of doing it out of habit. So one, be intentional when you spend, but two, think about that opportunity cost. Understanding that like, whoa, if instead of this, I went and invested it or I saved it for a dream vacation or I went and like actually was intentional with the spending here, how much different your life would be. You know, it's not just doing these small little things, but it's like it's death by a thousand cuts, right? It's like all these little ankle biters that happen to us over. We don't feel them in the moment, but you look back and you're like, whoa, did I really spend$2 ,000 last year on coffee and DoorDash or whatever it might have been?

10:05Yeah, it's just one of those things. We talked about this recently in an episode where every dollar you make needs to have a job. And it really comes to the more you automate your money and your investments, the less money you're going to have sitting around idly by that you feel you can waste because it doesn't have a purpose. So that's why just this episode is really impactful for a lot of people because it's going to be a wake up call. Automate your investments, make sure every dollar has a job, and then you won't find yourself bored spending$300 on a Saturday afternoon at a farmer's market.

10:39All right, Robert. So let's now round off this episode with how to actually capture your next raise so that you can begin to build wealth instead of spending it. So step one is to automate it before you spend it. Pretty straightforward, right? At the moment you get a raise, and I mean literally the same day, same week, the money hits your account, you're rocking this raise, you need to set up automatic transfers. So if you're getting an extra$600 a month after taxes, set up an automatic transfer of half of that, let's call it$300 to your investment account. And maybe the other half can go to a savings or whatever else you want to really intentionally spend this money on, but automating it before you spend it.

11:20And if you do this correctly, you're able to do it before it feels like extra money, right? It feels like, well, I only have$300 to work with now, despite actually making an extra$600 a month. Do this before you get used to it. Do it before your brain recalibrates into that new baseline, right? Because once you feel like you have more money, you're going to spend the money. That's just human nature. This is the single most important thing you can do. You automate it immediately. Do not wait. Don't think about it. You just do it. I want to click back on that. Get rid of the money as soon as possible because once your brain and your lifestyle is adjusted to that new money, it's hard to go back.

11:54And that leads me into number two, and that is use the 50-50 rule. Here's how the rule works for most people. When you get the raise, commit to saving and investing at least 50 % of it. Pretend it doesn't exist. The other 50 % you can use to make those subtle upgrades to improve your lifestyle if you want, but you have to hit the 50 % first threshold of getting that money invested. This gives you the permission to enjoy some of the raise. You're not living like a monk, but you're also not giving away all of your financial progress. It is a balance and a very important one. And honestly, for the first few years of your career, I'd argue you should be capturing 70 to 80 % of every raise because that's when you're getting your base built and you're setting yourself up for the future.

12:43So when you're young, you don't need a fancy apartment. You don't need a luxury car upgrade. You definitely don't need the new iPhone. Every single model, Austin and I don't even have the new iPhones and we have millions of dollars. You need to build your financial foundation. You need to get out of debt, build an emergency fund, and save and invest for the future. That's what matters. Now, step three of capturing your raise to build wealth is to increase your retirement contributions. Every time you get a raise, immediately increase your 401k contribution percentage. So if before you were contributing 10%, bump it up to 12.

13:18Maybe you were contributing 15%. Let's go to 18, right? Just increase the percentage contribution. Most people never touch their 401k contribution percentage after they set it up. That's a mistake in our opinion. Your contribution should go up as your income goes up. So if you're making more money, you should be saving more money simultaneously. You're increasing your retirement savings, which lowers your taxable income if you're doing a traditional 401k, which means you're paying less in taxes, a win-win-win, right? Building wealth, paying less in taxes, and you're not even feeling the difference in your paycheck because you automated it away straight at the employer.

13:54You're like, oh, I don't know. I didn't get the money. Got to raise more money. It's gone. You don't even see it. You don't feel anything. So please, step three, increase those retirement contributions if they make sense for you. This is an underrated step, in my opinion. Yes. And step four, avoid new recurring expenses. This one is critical. Do not add new recurring expenses right after the raise. No new subscriptions, no upgraded car lease, no more expensive rent. Recurring expenses are wealth killers because they lock you in. You can't go back once you sign on that new lease or that new car payment.

14:28You just can't go backwards. Once you commit to that$2 ,000 apartment instead of the$1 ,500 one, that money is gone every single month. And one-time upgrades are fine, but don't add recurring monthly expenses unless absolutely necessary. And our final step to help each and every one of you capture more of that raise to build towards wealth is track your lifestyle inflation. Once a quarter, sit down and review all of your spending. And I mean all of it, just like we talk about the honest budget. Compare it to the last quarter. Compare it to last year. Are your expenses creeping up? If so, where?

15:06Identify the leaks and plug them before they become permanent. These are usually thought of as harmless ankle biters, but death by a thousand cuts is still very real. Don't listen to the fake gurus that say small incremental changes don't add up to being financially free in retirement because they're wrong and they don't understand the math of it all. Most people never look at their spending and they have no idea where their money goes. Don't be that person. Be intentional. Track it. Adjust it. Control it. What a great sort of five-step breakdown here on how to capture your next raise to build wealth.

15:40I think you did a great job of explaining that, Robert. So here's kind of to close the episode off, right? Raises are opportunities. They're chances to level up financially, but most people waste them. They let livestock creep, steal every dollar, and they end up no better off than they were before. So don't be like most people. Be intentional. When you get your raise, go capture it, just like we laid out for you guys here, to start building wealth. automate your savings, increase those retirement contributions, avoid those new recurring expenses, and give yourself permission to enjoy some of it, but only after you've secured your financial future.

16:16Yeah, the people that build real wealth aren't the people who make the most money. They're the people who keep their lifestyle in check as their income grows. They're the people who understand that true wealth isn't about what you spend, it's about what you keep and what you invest and automate. So the next time you get a raise, ask yourself this question. Am I going to let this money disappear into lifestyle creep or am I going to use it to build the life I actually want for the future? What an awesome episode, Robert. Now, before we jump to the Q &A section of this episode, got to give a shout out to Blossom.

16:48You guys have heard us beat the drum on this company all year, but if you haven't already considered checking out the Blossom social network, you really have to go give them a try. We know a number of our Rich Habits members actually made it out to their tour earlier this fall. And they said that they had a blast. It was amazing. It was really cool to see how they were able to connect to all these investors that meet online actually here in real life. So Blossom, I think they're doing some fun stuff, Robert. Yeah, definitely. And I heard someone call it the Facebook for investors. And that's exactly a good way to think about it.

17:20We're enjoying spending so much time on the platform. And it just is a really good way to be transparent, get the information out there, and share with other like-minded people. Yeah, at Blossom, people share their strategies, their wins, their lessons. It's open, it's supportive, it's transparent. Yeah, and exactly. You can follow us, see our real holdings, even track when we add a new position. It's like learning by seeing from real portfolios, not random opinions. So if you're serious about building wealth or just want to surround yourself with investors who think long-term, go check out Blossom.

17:53It's free, it's fun, we're both on there. go check out blossomsocial.com. Type in Robert Croak. Type in Austin Hankwitz. You'll see us, and it'll be cool. All right, Robert, let's jump over to our first question coming from Beth M. Beth says, I currently live in Texas and plan to move to Massachusetts. Who can I contact about the cost of living for the East Coast, specifically there in Massachusetts, versus Texas? I'm concerned my pension being taxed differently, any additional income taxes and insurance I need to figure out would a financial advisor have that, a CPA perhaps. I'm not too sure how to properly do this research.

18:30My spouse and I are in our mid-60s and we very much are excited to make the move. So any suggestions are appreciated. Robert, what's your take on this? How would you help Beth here figure out the sort of total cost of living change from going from Texas, which I think is a pretty reasonable state depending on where you live, to Massachusetts, which could be pretty petty. Yeah, I would say start with your CPA or your lawyer if you have one. They're going to know right off the gate, especially if they're for those individual states. They're going to know the state laws that are relevant to your situation.

19:02But also, you can always rely on Mr. or Mrs. Chat GPT. Put in the information, make sure it's a very detailed prompt, and it will pull up all local legislation relevant to your task and help you along the way. That's what I would do. I think It's pretty simple. I have lawyers and accountants all over the country, so it's easier for me. So if you don't, definitely try out ChatGPT. Yeah, that's the fun thing about the show, Robert. I feel like whenever we have ideas or answers, there's no gatekeeping, right? So I actually just did this exact same thing. I just put this question inside ChatGPT for Beth here to fact check and see just how helpful that could be.

19:40And again, this is for anybody, right? It's like, Austin, you guys are telling us to go use ChatGPT. Yeah, absolutely. Absolutely. ChatGPT, Grok, Perplexity, whatever you can figure out to use to help you be more resourceful. So ChatGPT says people to contact include your financial advisor or CPA. State and local resources including the Massachusetts Office of Economic Development. They offer relocation and cost of living information. You can also go to mass.gov, search for cost of living or retiree taxes. And there's also non-government related tools like the NerdWallet Cost of Living Calculator, bestplaces.net that allow you to compare city to city housing, healthcare, food, etc.

20:18And then tax foundation or smart asset tax calculator for comparing state income and retirement taxes. So Beth, and everyone else listening, highly recommend taking advantage of these platforms, if it's ChatGPT, if it's Google Gemini, if it's Perplexity, if it's Grok, whatever it might be, I mean, they are so full of resources and ideas here. But you're definitely on the right track for thinking about talking to an advisor, talking to a CPA. And do you have any pieces of advice for Beth here, Robert, as it relates to moving from such a low cost of area to potential high cost of area, making a move like this?

20:51Yeah, I think it's all about just understanding before you move the difference in cost. Food's going to be more expensive. Dining out's going to be more expensive. Rent, everything, lawn care, it's all going to be relative to that area. so you're going to have an adjustment period of a few months to get used to it because that's just the nature of the beast with higher cost of living generally is higher wages as well so it balances out pretty well the good thing about anyone thinking about relocating is find the sweet spot like for me i wanted to move to florida i wanted to be more southern in florida and everyone was saying go to miami go to naples but then when i considered miami and naples cost of living daily and monthly to St.

21:35Petersburg and some of the other cities of that nature, it was immensely less, 20, 30 % less in rent, food and drinks, everything else. So I chose St. Petersburg over one of these others because of the overhead and the cost of living. And so just keep that in mind because you want to be able to make that adjustment along the way and not have shock in what it's going to cost you different from moving from one state to another. I think that's great advice. Now our next question comes from Tandra M. Tandra says, hi, I hope this question makes it to you. I have$200 ,000 in a 403B with my job that I want to roll over at the end of the year.

22:11I'm retiring on December 12th, 2025. I'm 51 years old and I don't plan to touch my$200 ,000 until I'm 60 to 62 years old. I'll be bringing home$9 ,000 a month from the teacher retirement system, so I won't need the 403B to live on. So all of that is really just extra money. Would it be a good idea to roll it into a public account and put it in VOO? I plan to work part-time as a nurse practitioner one to two days per week after retirement so I could potentially continue to contribute to this account as well. Would love to know your thoughts. I need to get it working for me. I just don't know where to put it.

22:44So Tandra, if I were in your shoes, I love that idea. Roll that 403b over into a public account. Get that 1 % match. Call it$2 ,000 in your instance here. A 403B would go into a traditional IRA. Correct me if I'm wrong, Robert, but once that money is in there, yeah, rock and roll. I mean, you're 51 years old. You've got 20, 30 more years of good compounding growth ahead of you. Put most of it in the S &P and the NASDAQ and the total stock market index with a VTI. Maybe if you want some of it into some T-bills or any other, you know, precious metals, real estate, things that are a little bit more consistent over a long period of time, you can do that.

23:21But it seems like your teacher retirement system has kind of got you figured out from that perspective. So if it really is just extra money to invest, consider it doubling every seven years if it's invested entirely in equities via the S &P or the NASDAQ. It's about the rule of thumb there with the rule of 72. So rock and roll. And that's what I would do. Robert, what do you think? I agree 100%. I think it's a great idea. Get it out of the 403B, have autonomy over it. You can then make the adjustments as you see fit. And like Austin said, I love that idea of like VOO, VTI, QQQ, AIQ, maybe get a little bit of cryptocurrency with Bitcoin, Ethereum and Chainlink, maybe a little bit of precious metals with GLD and SLV.

24:05All really good ideas, especially for as young as you are to really multiply this money over the next 10, 15 or 20 years. Now our final question comes from Fred on Instagram. Fred says, I recently got an interesting investment opportunity. A restaurant owner I know is looking to reopen his restaurant and wants to do it without debt. So he's offering 5 % stakes to investors for$10 ,000 each. He didn't approach me as a potential investor, but as someone with restaurant and finance experience to get my opinion on his strategy. Based on the sales of the exact same restaurant he had, he was doing about$115 ,000 of net profit over the last seven months.